Bitcoin enthusiasts are a bit shaken today after learning of the arrests of 2 figures in the Bitcoin community, one of them highly prominent. Charlie Shrem and Robert Faiella were recently arrested on charges of money laundering and operating an unlicensed money transmitting business.
Charlie Shrem is the CEO of now defunct Bitinstant, a Bitcoin Exchange out of operation for months, as well as the Vice Chairman of Bitcoin Foundation, a trade group championing the adoption of digital currency.
It is alleged that Shrem conspired with Faiella to funnel over $1 million of bitcoins to users of Silk Road, formerly a online black market frequented for drugs and other illegal transactions. Silk Road was shut down by the FBI in October. Faiella, who is also alleged to have operated an illegal exchange, is said to have sold bitcoins to users of Silk Road and pass on their purchase orders to Schrem, who would then fill them. Funds would then be transferred to Faiella's account at an unidentified exchange service based in Japan. Shrem apparently used the operation to purchase drugs for himself as well.
Faiella allegedly purchased the bitcoins from Shrem's Bitinstant, for which Shrem is accused of not having reported to regulators and furthermore helping to facilitate through a facade of "banning" Failla's e-mail address. "BTCKing", however, continued to transact unimpeded.
While the story is shocking to many, Bitinstant had been out of operation for months and according to Shrem himself, was blacklisted by US banks. Unlike the sudden unfolding of the Silk Road saga, those following developments in Bitinstant and the Bitcoin world in general should not find this as a total surprise.
After some shock in BTC markets, possibly related to these events, BTC is starting to make a comeback and is approaching $960 on MtGox.
