Bitcoin Backer Gets Two Years Prison for Illicit Transfers

Charlie Shrem, an outspoken supporter of Bitcoins, was sentenced to two years in prison on Friday for indirectly helping to send $1 million in the digital currency to the Internet black-market bazaar Silk Road.

Shrem, a former vice chairman of the Bitcoin Foundation, was also ordered by U.S. District Judge Jed Rakoff in Manhattan to forfeit $950,000 after pleading guilty in September to aiding and abetting an unlicensed money transmitting business.

Rakoff said Shrem, 25, was not "some kid making a one-time mistake," but someone who "excitedly" participated in a novel crime involving Bitcoins that contributed to drugs sales.

"The very innovativeness of it made it a danger to controlling drug trafficking," Rakoff said.

The Bitcoin evangelist faced up to five years in prison, and the court's probation office had recommended a 57-month term. His lawyer argued for probation, saying the case had already sent a message to the Bitcoin community.

"No one is doing this anymore," Shrem told Rakoff. "There's no more money laundering. They're terrified."

Shrem was charged in January following an investigation into Silk Road, an online marketplace that accepted Bitcoin for illegal drugs and other illicit goods and services that U.S. authorities seized in October 2013.

Lawyers for Shrem, who at the time was chief executive of Bitcoin exchange BitInstant, said in court papers their client was not interested in promoting the Silk Road website.

Shrem's lawyers said his desire to promote Bitcoin led him in 2012 to help Robert Faiella, an underground Bitcoin exchanger in Florida, trade over $1 million in cash for Bitcoins that were in turn sold to Silk Road customers.

Prosecutors said Shrem's motivation was financial.

In court papers, they quote Shrem telling his then-business partner he did not want to ban Faiella as a customer since he had made them a "good profit."

BitInstant closed in 2013. Shrem stepped down from his post at the Bitcoin Foundation, a trade group, after he was charged.

Faiella, who was known online as BTCKing, pleaded guilty in September to operating an unlicensed money transmitting business. He is scheduled to be sentenced on Jan. 20.

Silk Road's alleged operator, Ross Ulbricht, is scheduled to face trial on Jan. 13. He has pleaded not guilty to charges that include conspiracy and narcotics trafficking.

The case is U.S. v. Faiella, U.S. District Court, Southern District of New York, No. 14-cr-00243.

© Thomson Reuters 2014