BitInstant CEO and Bitcoin Foundation Vice Chairman Charlie Shrem Arrested in New York

Charlie Shrem,  the Vice Chairman of the Bitcoin Foundation  and CEO of currently shuttered Bitcoin exchange, BitInstant, has been arrested.

Police arrested Shrem at JFK  airport in New York yesterday, on charges of money laundering and acting as an unlicensed money transmitter.

It is alleged that Shrem sold / laundered Bitcoin in excess of $1 million for users of narcotics bazaar, Silk Road.

Robert M. Faiella, a private Bitcoin exchanger known online as BTCKing, was also arrested today at his Florida home. He is facing similar charges.

Shrem is facing a maximum sentence of 30 years in prisoin, Faiella 25 years. Shrem is facing the extra 5 years for an additional charge of violating the Bank Secrecy Act. Allegedly, he neglected to report potentially unlawful transactions which Faiella may have conducted through BitInstant.

I’m no lawyer, but it’s unclear to me how either man can be blamed for what their customers chose to do with their virtual cash.

This story  of Shrem’s early success with Bitcoin depicts him as a likeable guy who colours outside the lines a bit, but certainly no villain. Perhaps if he had Jamie Dimon’s wealth and connections, he’d have gotten a slap on the wrist instead of the bracelets?

Market reaction: I’m seeing a definite response on markets. It is possible the bullrun was interrupted by this news leaking out. Now that it’s public knowledge, the Bitcoin price has passed below the $800 support level on Bitstamp, currently down to $791 on high volume. I would advise people against panic. Personally I’m waiting for the dust to settle before seeking a good buy-in opportunity.

Update: Right now it’s at $760, it came all the way down to break through major support at $765 and hit $750.

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You can read the Justice Department’s full press release on their website.