Robert M. Faiella, a/k/a BTCKing, an underground Bitcoin exchanger, and Charlie Shrem, the Chief Executive Officer and Compliance Officer of a Bitcoin exchange company, schemed to sell over USD$1 million in bitcoins to users of Silk Road, a darkweb marketplace that enabled its users to buy and sell illicit drugs.
From December 2011 to October 2013, Robert M. Faiella ran an underground Bitcoin exchange on this website, where a wide variety of illicit drugs were bought and sold in bitcoins by the site’s users. He sold bitcoins, under the username “BTCKing”, to users who were seeking to buy drugs.. He operated via a company based in New York and named the “Company”. The Company was designed to enable customers to exchange cash for bitcoins without providing any personal identifying information, and it charged a fee for its service. Faiella then sold the bitcoins exchanged through the Company to Silk Road users at a markup.
Several pieces of evidence gathered by the investigators showed that he himself purchased drugs on the Silkroad marketplace and was aware that his services contributed to Faiella’s underground bitcoin exchange for Silk Road users. Using this scheme, Charlie Shrem and Robert Faiella exchanged over USD$1 million in cash for bitcoins for the benefit of Silk Road users.
Both defendants accepted to forfeit USD $950,000 to the government as part of their plea deals.
A US Attorney initiated the case on 24th January 2014 with a Criminal Complaint against Robert M. Faeilla and Charlie Shrem, charging them with conspiracy of money laundering and operating an unlicensed money transmitting business. Charlie Shrem was arrested on 26 January 2014 in New York, and Robert M. Faeilla was arrested on 27 January 2014 at his residence in Cape Coral, Florida.
On 10th April 2014, the Grand Jury indicted the defendants on 4 Counts:
1) and 2) Operating an unlicensed Money Transmitting Business;
3) Money Laundering Conspiracy;
4) Willful failure to file Suspicious Activity Report.
Robert M. Faiella was charged with counts 1 and 3 and Charlie Shrem with counts 2, 3 and 4 and forfeiture allegations were taken against both defendants.
Robert M. Faeilla then submitted a Motion to Dismiss on Count 1, rejected by the District Court via a Memorandum Order of 19 August 2014 (attached document).
Charlie Shrem pled guilty under Count 2 and a waiver of Indictment was adopted on 4th of September 2014. Robert M. Faiella also pled guilty a few months later. Both defendants obtained the same plea deals and were sentenced to 2 years imprisonment with 3 years supervised release and a forfeiture of USD$ 950 000 each. They were sentenced on 12 December 2014 and 20 January 2015 respectively.
United States District Court for the Southern District of New York