Two Bitcoin Exchangers Plead to Charges Tied to Silk Road

Charlie Shrem, the ex-Bitcoin Foundation vice chairman, and a Florida man who operated an underground exchange service for the virtual currency pleaded guilty to U.S. charges tied to the illicit online bazaar called “Silk Road.”

Shrem, 24, admitted in Manhattan federal court today that he helped transmit funds on behalf of Robert Faiella, knowing the money would be used for illegal transactions. Faiella, 54, who operated an illegal bitcoin exchange called “BTCKing,” pleaded guilty to running the illegal money business.

“I knew that BTCKing was involved in transmitting funds that had been converted into bitcoins and were used on the website called Silk Road,” Shrem told U.S. District Judge Jed Rakoff. “I knew that the business Silk Road was involved in was the buying and selling of narcotics.”

The case is part of a crackdown by Manhattan U.S. Attorney Preet Bharara on Silk Road, a sprawling and anonymous black market bazaar. Previously, Bharara accused Ross William Ulbricht of running Silk Road under the alias “Dread Pirate Roberts.” Three other ex-Silk Road employees are also accused of helping run the $1.2 billion website. All deny wrongdoing.

Shrem and Faiella face as long as five years in prison when they’re sentenced on Jan. 20. They were charged in April with a scheme to launder more than $1 million in the virtual currency tied to transactions on Silk Road. A trial was scheduled to begin this month.

Promoting Bitcoin

Shrem, who was also chief executive of a Bitcoin exchange company called BitInstant, said in his plea that he spent 11 months exchanging dollars for bitcoins for Faiella.

Shrem’s lawyer, Marc Agnifilo, said after court that Shrem hopes to avoid prison and that he’ll be allowed to return to the work of promoting bitcoin.

“Charlie Shrem was on the path to making bitcoin an accepted and useful bit of currency,” Agnifilo said, calling the crime an aberration for his client.

Earlier, Faiella lost a bid to dismiss one of the counts against him on the grounds that bitcoins don’t qualify as “money” and he didn’t therefore run an unlicensed money-transmitting business. Rakoff disagreed, saying bitcoins “clearly qualified as money.”

The case is U.S. v. Faiella, 14-cr-00243, U.S. District Court, Southern District of New York (Manhattan).

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