Bitcoin advocate steeped in criminal money laundering for hardcore drug dealers

Thursday, February 06, 2014 by: J. D. Heyes
Tags: Bitcoin, money laundering, drug dealers

(NaturalNews) Where once it was considered the currency of the future, replacing the U.S. dollar and other physical currencies in the new high-tech world of finance and economics, Bitcoin is increasingly being seen instead as a haven for the criminally inclined.

That reputation was further solidified recently when the millionaire founder of a Bitcoin start-up was indicted on a host of federal charges.

According to Business Insider (BI):

The Bitcoin community faces a major publicity crisis this week with the arrest of BitInstant CEO Charlie Shrem on charges of money laundering for users of the digital black market known as Silk Road.

Shrem, though only 24, is considered an important figure in the Bitcoin community.

In just a few years, Shrem has gone from a college senior investing in the latest silly Wall Street bubble to someone of stature within the Bitcoin community - a "Bitcoin millionaire," if you will - a concept that is just now hitting the public's consciousness.

But now, with this recent arrest, Shrem is giving Bitcoin another bad rap instead - and deservedly so.

He wanted to be helpful, but he had another side

Here's his story.

In 2011, BI reports, Shrem bought into Bitcoin while attending Brooklyn College, when the new commodity was selling for less than five bucks each. He bought in again when it rose to $20.

Sporting a double major in economics and finance, Shrem took a look at his returns and discovered that there was an opportunity to start something new. He borrowed 10 grand from family members and founded a company called BitInstant, which provided a service that allowed users to buy into Bitcoin quickly.

"Those who have spoken to Shrem in a professional context note that he was a great founder to talk to and deal with," BI reported.

"[He's] smart, to the point, seemed down to earth, relevant, not a name dropper or annoying bullshitter," said a source who had spoken with Shrem multiple times about his business. "He genuinely wanted to be -- and was -- helpful."

But another source - this one a reporter - saw a different side of Shrem. Eric Markowitz of Vocativ.com wrote of Shrem's incessant pot habit:

A month ago, I spent the evening drinking and hanging out with Charlie Shrem, the Bitcoin millionaire, at his nightclub in New York City.

Later in the the night, we went up to his apartment, where I spotted a couple of bongs. At some point, Shrem told me, "I won't hire you unless I drink with you or smoke weed with you - that's a 100 percent fact." As a reporter, it's always great to get quotes like these. You don't hear too many CEOs talk about their love of weed. I stuck it in my story.

Markowitz said the publishing of his story earned him a "barrage" of texts from Shrem, "begging" him to remove any references to the dope smoking and vowing that he had since given up the habit:

We refused his request, mostly because we didn't think smoking weed was that big a deal. Plus, it was all true. He had mentioned pot smoking several times in our interview, all of them unprompted.

Turns out, Markowitz writes, "his paranoia makes a little more sense," given his recent indictment.

Shrem has been indicted by federal prosecutors representing the Justice Department, the Drug Enforcement Agency and the Internal Revenue Service. They allege that the Bitcoin millionaire, along with Robert Faiella, a co-conspirator, "schemed to sell over $1 million in Bitcoins to criminals bent on trafficking narcotics on the dark web drug site Silk Road."

Expect to see more of this activity in the future involving Bitcoin

His arrest does not appear to be related in any way to the October 2013 arrest of Ross Ulbricht, who is aka Dread Pirate Roberts, the alleged Silk Road operator. "But with the arrest of Shrem, it's becoming abundantly clear that federal prosecutors are ramping up efforts to crack down on online exchanges where Bitcoin is the currency of choice," Markowitz reported.

The indictment alleges that:

Robert Faiella ran an underground Bitcoin exchange on the Silk Road website. According to prosecutors, Faiella purchased Bitcoins from BitInstant, Shrem's company, then resold them at a markup to his Silk Road customers. (Bitcoins were the only form of payment accepted on Silk Road.) Shrem is accused of knowingly facilitating, and even helping Faiella, in these transactions.

That Bitcoin exchanges are being targeted by federal investigators as hubs of money laundering and fraud, not to mention sales of illegal substances, should come as no surprise; Feds have suspected Paypal of the same in the past.

Expect to see similar indictments in the future as Bitcoin exchanges continue to attract the dregs of society seeking to hide illicit activities.

Sources:

www.vocativ.com

http://www.businessinsider.com

http://betabeat.com