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Bitcoin exchange CEO could face 30 years in jail

The CEO of BitInstant has a tough road ahead of him. Twenty-four-year-old Charlie Shrem as well as Robert Faiella, 52, were arrested Monday and will be charged with money laundering. Shrem’s company, BitInstant, which allows users to change money into bitcoins, played a large role in the alleged scheme. Officials state that Shrem allowed Faiella to use BitInstant to produce bitcoins to sell to users on illegal drug website Silk Road.

Eric Martindale (L) and John Dreyzehner from BitPay, the world leader in Bitcoin business solutions, demonstrate a transaction using an ipad to charge a customer who is using his phone to transfer Bitcoins for the purchase at the North American Bitcoin Co
Photo by Joe Raedle/Getty Images

According to The Verge, the judge alleges that Shrem knew the activity was illegal and even purchased drugs from the website. By knowingly allowing Faiella to do as he did, Shrem violated the Bank Secrecy Act. U.S. Attorney Preet Bharara stated that when bitcoins, like any traditional currency, are laundered, law enforcement must step in.

The BBC reports that the pair were scheming to sell more than $1million in bitcoins for users of Silk Road.

James Hunt of the Drug Enforcement Agency stated, “Drug law enforcement's job is to investigate and identify those who abet the illicit drug trade at all levels of production and distribution, including those lining their own pockets by feigning ignorance of any wrong-doing and turning a blind eye.”

Business Insider notes that BitInstant is currently offline. It has also recently been the subject of a class-action suit involved a misrepresentation of its services.

The future of Bitcoin is also uncertain as state and federal officials try to figure out their role in dealing with establishments that support the digital currency. Bitcoin already suffered a blow to its image when knowledge about Silk Road became widespread.

Each man is charged with conspiracy to commit money laundering and operating an unlicensed money transmitting business, which carries a maximum sentence of 20 years and 5 years, respectively. Shirm is also charged with willful failure to file a report of suspicious activity, which carries a five year max sentence.

Last year Silk Road was shut down and the alleged owner was arrested.

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