Bitcoin sails on

by , Jan 27, 2014 | 1:38 pm

Preet Bharara, the US attorney for the Southern District of New York, today announced the unsealing of a federal criminal complaint against Robert Faiella and Charlie Shrem. It’s alleged that Faiella ran an underground bitcoin exchange on Silk Road. Shrem is well-known in the bitcoin community as the CEO of BitInstant and the Vice Chairman of the Bitcoin Foundation.

A copy of the criminal complaint against both men is here.

The complaint alleges that both Shrem and Faiella operated an unlicensed money transmitting and that Shrem specifically facilitated that business through BitInstant. Further to those allegations, Shrem is also charged with violations of the Bank Secrecy Act because of his purported wilfull failure to file reports with the Treasury Department. Finally, both men are charged with money laundering conspiracy under 18 U.S.C. 1956.

I’ve reviewed the complaint, and there are already some interesting initial tidbits. One is the standardized use of undercover federal agents to conduct business on the Internet with the investigatory results being used in sworn statements (see starting at para 23). Another is the boilerplate disclaimer in para 14(e) that “[b]itcoins are not inherently illegal and have known legitimate uses,” which is very similar to the complaint language in the earlier Silk Road complaint. (See my earlier post on that complaint here. In fact, many of the same points about Silk Road and bitcoin in the Shrem complaint are made in similar fashion in the Silk Road complaint.) Third, whether bitcoins are considered to be “funds” under US law or not, the fiat US dollars that were allegedly received in the sale of these bitcoins certainly are funds, so there may not be much legal ground to till on that particular point.

This complaint adds nothing new to our understanding of bitcoin usage under US law. Even if we assume that each and every allegation is true (which, I should add, I am not assuming at this stage), all that really tells us is: 1. that one shouldn’t use bitcoins to transact illegal or illicit activities, online or in a bricks and mortar environment (the same could be said of cash); and, 2. that exchange services in the US have to follow the money transmitter rules, both in terms of registration and ongoing compliance. We knew both of those things already: from the current wording of federal law, from the Congressional hearings last year (wherein both the DOJ and FinCEN seemed clear that they have the tools to attack nefarious uses of bitcoin), and from Silk Road complaint, as just three examples. If true, these allegations triggering federal prosecution don’t appear all that novel.

As much as anything, this complaint is further proof of what people have been saying since the Silk Road complaint news broke last October: that there would be fallout from last year’s allegations and that more and more people involved with Silk Road would be caught up in the ongoing probe by federal prosecutors and law enforcement.

Perhaps in response, the price of bitcoin dropped briefly to below $825 (from $888 earlier today) before recovering somewhat to $835.

2 Comments to “Bitcoin sails on”

  1. Coins In

    Well put, Stu. I was surprised the price did not take a bigger hit, even temporarily. Look forward to hearing more from you on tis area.

  2. Dan Michalski

    hmm, theoretically, if i happen to have some $$ on Mt. Gox, are we in Full Tilt and Neteller territory yet?