Bitcoin exchange bosses charged over shady Silk Road dealings

Following the forcible closure of the Silk Road last year, two Bitcoin exchange operators have been arrested in the US for selling Bitcoins to "Black Market" users.

BTCKing, otherwise known as Robert Faiella, and Charlie Shrem from BitInstant, one of the largest Bitcoin exchanges on the Internet, have both been charged with money laundering.

The Department of Justice said that the two men were embroiled in a scheme to sell more than $1 million (£603,000) to users of the Silk Road, who would use the anonymous virtual currency to pay for illegal drugs on the online drug market place.

The site was shut down last year and its owner arrested, but the authorities claim that Faiella and Shrem knew that bitcoins were being used for such purposes. They therefore stand in violation of the Bank Secrecy Act which requires American financial institutions to alert authorities to any suspicious activity they've noticed during transactions.

Following the arrests, James Hunt, from the US Drug Enforcement Agency, said in a statement: "Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way.

"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."

The allegations are especially significant since Shrem is a founding member and current Vice President of the Bitcoin Foundation, a trade group set up to promote Bitcoin as an alternative currency.

Faiella, aged 52, was arrested on Monday after officers detained him at his Florida home. Shrem, 24, meanwhile was taken into custody on Sunday at New York's JFK airport. He is expected to appear in court on 3 February, according to prosecutors.

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