The operators of two Bitcoin exchanges have been arrested in the US following allegations surrounding their involvement in a scheme to sell the virtual currency to users of online drug marketplace Silk Road.
According to the BBC, the US Department of Justice said that Charlie Shrem of BitInstant.com and Robert Faiella, known as BTCKing, have both been charged with money laundering.
The US authorities claim that the pair were engaged in a scheme to sell more than $1 million (€732,022) to users of Silk Road, a website that was shut down last year after its owner was also arrested.
Shrem, 24, was arrested on Sunday at JFK airport in New York, while 52-year-old Faiella was arrested at his Florida home on Monday of this week.
The pair each ran a Bitcoin exchange, a service that allows users to trade the virtual currency for traditional currencies.
Shrem has been accused of allowing Faiella to use BitInstant to purchase large amounts of Bitcoins to sell on to users of Silk Road who wanted to buy drugs in an anonymous way.
Authorities claim Shrem was aware that the Bitcoins were being used in this way and he was therefore in violation of the Bank Secrecy Act, which requires US financial institutions to alert authorities of any suspicious activity that could be related to money laundering.
Shrem is also a founding member and current vice-chairman of the Bitcoin Foundation trade group that promotes the virtual currency as alternative form of payment.
A spokesperson from the group said it was “surprised and shocked” by the news of his arrest.
“As a foundation, we take these allegations seriously and do not condone illegal activity,” the spokesperson said.
BitInstant had been one of the largest Bitcoin exchanges available online but has been inaccessible for some time, according to fellow Bitcoin Foundation board member Mike Hearn.
“Charlie’s impact on the Bitcoin community has been hovering near zero for a long time now,” Hearn said. “If the allegations are true, it’s part of a phase of Bitcoin’s life that the project is rapidly leaving behind (and good riddance).”
BitInstant also boasts investors such as Tyler and Cameron Winklevoss, the twins that sued Facebook owner Mark Zuckerberg after claiming he stole their idea for the social network.
In a statement, the Winklevoss twins said they were “deeply concerned” about Shrem’s arrest.
“When we invested in BitInstant in the fall of 2012, its management made a commitment to us that they would abide by all applicable laws – including money laundering laws – and we expected nothing less,” they said.
“We are obviously deeply concerned about [Mr Shrem’s] arrest. We were passive investors in BitInstant and will do everything we can to help law enforcement officials.
“We fully support any and all governmental efforts to ensure that money laundering requirements are enforced, and look forward to clearer regulation being implemented on the purchase and sale of Bitcoins.”