Charlie Shrem, the CEO of Bitcoin exchange BitInstant, has been arrested for allegedly laundering money for online customers.

BitInstant CEO Arrested

Money laundering alone would land Shrem in hot water. That he was supposedly laundering money for customers of Silk Road, an online drug marketplace, makes matters worse for the 24-year-old digital currency pro. According to the U.S. attorney in the Southern District of New York, Shrem helped a man named Robert Faiella sell over $1 million in bitcoins to Silk Road users, reported CNN.

Faiella, 52, used the online alias BTCKing while conducting his business with Shrem for several months. Shrem provided Faiella with bitcoins, which Faiella sold to Silk Road drug buyers and sellers, according to an Internal Revenue Service investigation. Although simply providing Faiella with the coins that were later used on Silk Road wouldn’t be a crime, it’s suspected that he knew full well where the money was ending up – and neglected to alert the Treasury Department.

Furthermore, an email exchange was recovered that shows Shrem advising Faiella on how not to arouse suspicion with his sizeable cash deposits. In total, the IRS believes Shrem and Faiella exchanged roughly $1.05 million bitcoins.

Bitcoin Could Take Hit From Charlie Shrem Arrest

Counting Winklevoss twins Cameron and Tyler among its investors, BitInstant helps people purchase bitcoins across the country and around the world. In addition to serving as BitInstant’s CEO, Shrem is also a vice chairman of the Bitcoin Foundation.

This latest controversy hitting the digital currency company could impede its efforts to get federal approval. Last November, federal authorities appeared to be warming to the idea of legitimizing Bitcoin as a currency. As of yet, however, it’s undetermined how the government would go about regulating it and preventing it from widespread use for illegal activity – such as what occurs on Silk Road.

– Chelsea Regan

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