( Interesting timing this criminal action brought forward the day before the big Hearing on virtual currencies such as Bitcoin with the New York State Department of Financial Services (NYDFS) ! )
DOJ Finally Going After The Criminal Masterminds With Arrest Of 24 Year-Old Bitcoin Exchange Founder
Submitted by Tyler Durden on 01/27/2014 12:48 -0500
The US crackdown on Bitcoin has been long in coming, with ebbs and flows of enforcement as regulators have been unsure exactly how to proceed with dismantling the digital fiat alternative. This morning the ebb became a rising tide, after U.S. prosecutors announced charges against two men operating Bitcoin exchange businesses for attempting to sell $1 million worth of Bitcoin to users of the underground black market website Silk Road, which was shut down by authorities in September.
Reuters reports that the U.S. Attorney's office in Manhattan said in a statement that authorities arrested Charlie Schrem, chief executive officer of the exchange BitInstant.com, on Sunday and Robert Faiella, who ran an underground Bitcoin exchange called BTCKing, on Monday. The two were charged with conspiring to commit money laundering and operating an unlicensed money transmitting business. Schrem is also vice president of the main Bitcoin-focused trade group, the Bitcoin Foundation, according to the foundation's website and Schrem's LinkedIn profile.
Some details from the charge against the defendants:
Federal prosecutors charged Faiella, 52, and Shrem, 24, with engaging in a scheme to sell more than $1 million of Bitcoins to users of Silk Road. Each defendant was charged with conspiring to commit money laundering, which carries a maximum prison sentence of 20 years. They are additionally charged with operating an unlicensed money transmitting business, which has a max sentence of five years in prison.The U.S. also charged Shrem with violating the Bank Secrecy Act by “willfully failing” to file suspicious activity reports on Faiella’s questionable transactions. This charge carries a maximum sentence of five years in prison.In addition to the Manhattan U.S. Attorney, the charges were announced by the Drug Enforcement Agency and the criminal investigation division of the Internal Revenue Service.“Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way,” said DEA acting special-agent-in-charge James Hunt.Schrem was apprehended by authorities at JFK International Airport in New York on Sunday and is set to appear in federal court in Manhattan later on Monday. Faiella was arrested at his Cape Coral, Fla., home on Monday and is expected to appear in federal court in the Middle District of Florida.The court documents allege Faiella operated an underground Bitcoin exchange on the Silk Road website between December 2011 and October 2013 that sold the crypto currency to users who wanted to buy illegal drugs on the site. After receiving orders, he filled them through a New York company designed to enable customers to exchange cash for Bitcoins anonymously, the U.S. alleges.Shrem served as the New York Bitcoin company’s CEO during much of that timeframe and was “fully aware that Silk Road was a drug-trafficking website” and that Faiella was operating an exchange service for Silk Road users, the documents say.Prosecutors say Shrem still did business with Faiella to maintain a “lucrative source” of revenue. He personally processed Faiella’s orders, gave him discounts on high-volume transactions, failed to file a single suspicious activity report and even helped Faiella “circumvent” the company’s anti-money laundering policies, the documents allege.Bharara said the investigation remains ongoing.
As a reminder, BitInstant, which at the time "aimed to be the go-to site" to buy and sell bitcoins, received a $1.5 million investment by Winklevoss Capital in May 2013. From theTechCrunch profile of the startup:
BitInstant, which has a full-time staff of 16 led by CEO Charlie Shrem, has emerged as a key player in the nascent Bitcoin market: The company already processes approximately 30 percent of the money going into and out of Bitcoin, and last month alone facilitated 30,000 transactions, the Winklevosses said in a phone call this week. The funding is meant to allow the company to further scale up its staff and product as it angles to become the go-to site for Bitcoin transfers.
The US charge is not a ringing endorsement for the premise behind the Winklevi investment:
The Winklevosses say they were attracted to invest in BitInstant in large part because of its leadership. CEO Shrem is the vice chairman of the Bitcoin Foundation, and CIO Alex Waters previously worked with the core developers on the original Satoshi Bitcoin client. “Charlie has been in the space for a very long time, and he has an impeccable reputation among Bitcoiners. He knows everyone in the space and everyone in the space knows him,” Cameron Winklevoss said. “One of the most exciting things about people who are into Bitcoin is that they’re a really passionate community, and Charlie is a passionate entrepreneur. He would be in that category of someone who lives, breathes, and sleeps Bitcoin.”
Perhaps. However, in retrospect Charlie's biggest crime was not being CEO of JPM or, at worst, HSBC, where money laundering and other criminal activity is not only encouraged but rewarded with soaring bonuses. The good news is that one can once and for all confirm that when it comes to "Justice" in the US, some - those who deal with legacy status quo mandated and enforced ponzi scheme fiat - are far more equal than anyone who dares to think outside the Fed's printer.
Finally, here is a recent profile of 24 year old "criminal mastermind" Schrem via Bitcoin Examiner.
Meet Charlie Shrem. He’s 23 years old and theco-owner of Evr, one of the most famous gastro pubs in Manhatan. The name might sound familiar, since we talked about this pub before, when it became one of the first establishments to receive Bitcoin as a payment for drinks and food in New York City.
But why is Charlie Shrem different from other crypto-millionaires? Because he is now a BitAngel, member of an investment group created to invest in Bitcoin startups. We’ve also talked about this group before here.
Today, whenever someone pays at Evr with digital coin, Shrem gets a little bit richer, but he’s using his money to help others. Everything started in 2011, when Bitcoin became more famous, he bought thousands of Bitcoins for about $20 each. He invested almost everything he had in what could have been a dangerous game. However, since then, the digital coin value has skyrocketed.
After his investment in the bar, he founded the exchange platform Bitinstant. “Infrastructure is what we need. We’ve got to build, build, build–financial software, exchanges, and different payment products”, says Charlie Shrem, who clearly followed his own advice and profited with it.
He might not have the same funds as big Silicon Valley investors, but he has turned into a Bitcoin angel anyway. “The early guys are the ones that run everything. In this space, how long you’ve been around matters”, explains the entrepreneur.
However, we would like to look at him and others and see some kind of Bitcoin ambassadors, the ones that are setting the example and showing how it’s possible to grow once you leave your fear behind and go deep into a new world like cryptocurrency. Because they show what Bitcoin is for real: an opportunity.
* * *
And now, please join us in a moment of solemn silence as we fondly recall the memory of all the HSBC bankers who were thrown in prison for aiding, abetting and profiting from laundering money with known global terrorists...
Also interesting timing - Russia warns on Bitcoin today......
Bitcoin In 2014 - The 3 Critical Factors
Submitted by Tyler Durden on 01/24/2014 21:24 -0500
In the last year Bitcoin has gone 'viral'. As ConvergEx's Nick Colas notes, a lot has happened in 2013: Price appreciation, yes, from $20 to +$800 – the result of this online “Currency” going from science project to mainstream topic. Volatility too – disruptive technologies seldom travel a level path. The story, Colas notes, is about to change, and there are three critical gates which bitcoin must navigate in the New Year. First is regulation, and we will get a good dose of that next Tuesday and Wednesday when the New York State Department of Financial Services holds hearings on bitcoin and potentially issuing a ‘Bitlicense’ to help regulate business which transact in the currency. Second isadoption – how will existing businesses incorporate bitcoin into their sales, marketing and payment channels. Lastly will be volatility, which will have to come down in 2014 to encourage broader use.
Via ConvergEx's Nick Colas,
If the ratio of dog-to-human years is something like 7:1, then a bitcoin year is something like 500 years to one regular 365 day turn of the modern currency calendar. Money as we know it today – a physical representation of stored economic value that supplants simple barter – goes back to about 600 B.C.. That’s when the Lydians – in modern day Turkey – started minting coins. It’s a lot easier to buy a sheep or a goat with a coin than working out a barter with the seller, and every advanced civilization since then has used currency in some form to make economic transaction easier. In 2008, an enigmatic programmer (or programmers) unknown released a paper describing an online payment system called bitcoin. At first it was basically a puzzle contest for cryptographic hobbyists, with a prize for solving an endless battery of puzzles. Bitcoins were code-breaking bragging rights that could be exchanged with others.
Then, in 2011, bitcoin began to find an actual following. Its anonymous nature – the core of the system does not hold name, address and other information typical of a standard banking system – made it ideal for illicit transactions. Individuals concerned over online privacy – ahead of their time, it now turns out – also appreciated the anonymity as well as the algorithmically controlled nature of the issuance of bitcoin. No open-ended checkbook (as the Federal Reserve enjoys) in the bitcoin world – every 10 minutes another 25 bitcoin appear. And that’s it. For all this adoption, bitcoin remained largely under the radar.
Last year, bitcoin had its debutante coming out party, and its price went from $20 to $230 to $80 to $1000 and closed the year at $800. We started writing about it in February, mostly because we thought it was interesting that society – a portion of it, at least – had sufficient faith in technology to hand over their heard earned shekels to distributed network of computers running a program written by person or persons unknown. Worshipping in front of a golden calf is one thing – making offerings to a virtual calf seemed to merit our attention. Over the course of the year plenty of other market observers tossed their two cents in the hat, mostly in hater mode.
Well, its 2014 and the value of all bitcoin outstanding sits at roughly $10 billion. Does that mean the future of the currency is assured? Of course not – there’s still plenty to go wrong. But what that hefty amount does demand is a reasoned approach to the fundamentals driving bitcoin’s future. There are headlines aplenty about bitcoin now – still, I think, with a distinctly skeptical eye. Which is fine. But to paraphrase a chant heard at many a street rally, ‘Bitcoin is here; get used to it.’
In thinking through a framework to interpret what will be an eventful 2014 for bitcoin, here are the three points – we’ll call them Bitcoin Buckets for a touch of alliterative flair – to guide the discussion.
Bitcoin Bucket #1 – Regulation. Since those little Lydian coins in 600 BC, issuing currency has largely been the domain of governments. Granted, the U.S. itself only followed that guideline after the formation of the modern Federal Reserve 100 years ago. But in general to issue currency you need some bureaucrats, a standing army, a bank, and some borders on a map. Bitcoin has none of that, which makes it the currency equivalent of a “Stateless person” at the end of World War II or a White Russian after the 1917 revolution.Initially, there was concern that governments – especially in America – would choose to squash bitcoin for fears over money laundering and illicit activity. That was, after all, an early use case for the currency and one that continues to this day. Then in the back half of 2013 two regional Federal Reserve banks published papers commending bitcoin for its low-cost facility of moving money, and it became clear that the U.S. central bank saw some value in the online currency.We’ll have another data point on government’s take on bitcoin at a hearing next week in New York City, courtesy of the New York State Department of Financial Services. The early buzz, from an interview on CNBC with Superintendent Benjamin Lawsky, looks promising. He seems to see the potential for bitcoin and related services to provide much-needed competition to the U.S banking system. Should merchants have to fork over 3-4% for credit card transactions? Should credit card holders have to wait a day (or more, in the case of a weekend) for payments to post to their accounts? Bitcoin-based competition – within the confines of modern anti-money laundering and “know-your-customer” laws – could help drive those charges lower.In the end, bitcoin really isn’t competition for national currencies – at least not for quite a while. It can be competition here-and-now for national banking systems. It is a disruptive technology for transferring money cheaply, by virtue of the online system’s dual mandate of solving those puzzle and keeping track of all transactions as a requisite for a seat at that table.Bitcoin Bucket #2 – Adoption. One of the side benefits of getting on the bitcoin story early last year was that I had a lot of very entertaining conversations with computer nerds who had been early bitcoin adopters. By virtue of their early “Mining” efforts – solving those puzzles in the core algorithm for bitcoins – many of them found themselves quite wealthy. Not a few hundreds thousand dollars well off, mind you, but serious seven and eight figure wealthy.At least on paper, that is… But they were reluctant – and still are – to sell those bitcoins on a still illiquid open market. And that’s where capitalism comes in. Bitcoin millionaires are a ready-made customer base for a wide range of luxury and near-luxury goods and services. If you want to peruse a list, look here:https://spendbitcoins.com/places/.The bottom line is that bitcoin adoption by merchants is just going to accelerate. There’s a reason why Rodeo Drive and Madison Avenue have all the chic shops; that’s where the money is. And now the money is in bitcoin as well.Bitcoin Bucket #3 – Volatility. You can’t make an omelet without breaking some eggs, so it should be no surprise that bitcoin was both a big winner in 2013 and extremely volatile. April saw the largest exchange melt down on huge volume. Later in the year we had a similar selloff as the Chinese government sought to crack down on asset laundering. None of this prevented bitcoin from ending the year near enough to $1000 to prove there is some level of organic global demand.To succeed as a method of wealth transfer – which we believe to be the cornerstone of bitcoin’s long term success – price volatility will have to decline. Yes, that is a tall order for asset with very little issuance and no convenient way to short it. We have no doubt that merchants will adopt bitcoin simply to access newly minted high net worth individuals. But to keep them in the fold and increase the usage of bitcoin in other parts of their business, they will need to see some greater stability in the price.To end on a cautiously optimistic note, this appears to be happening already. The decision by the Chinese government to curtail bitcoin exchange activity could have sent the currency into free fall – the growth in demand inside that country was a big part of the bullish case for bitcoin. And drop it did – to $600. But not $100. Or $10. Since then it has bounced back to $800-900. Baby steps on the road to lower volatility. But steps nonetheless.
It is tempting to conclude these notes with ‘Bitcoin is going to $5,000!’, but I don’t think anyone can reliably predict where it will trade over the next year. What does seem more certain is that bitcoin is a very important disruptive technology in financial circles. If it were a private, venture backed enterprise, it would certainly be worth more than the latest mobile picture app or video game platform. Which puts that $10 billion total valuation in some context. But our three buckets put some context around the challenges ahead – regulation, adoption, and volatility. We think that bitcoin will grow in relevance over 2014; we know it will be fascinating to watch.
Different points of view are good and actually healthy , which includes naysayers !