Charlie Shrem Sentenced: Former Bitcoin Entrepreneur Gets Two Years in Prison

By Inside Bitcoins Dec 19, 2014 4:10 PM EDT

NEW YORK (InsideBitcoins) — Bitcoin advocate, early adopter and founding board member of the Bitcoin Foundation, Charlie Shrem was sentenced today as the result of a plea deal struck in September. The former bitcoin entrepreneur was sentenced to two years in prison plus three years of supervised release by U.S. District Judge Jed S. Rakoff.

Charles ShremShrem, 25 of Manhattan, was arrested in January — along with associate Robert Faiella – accused of selling over $1 million in bitcoins in a money laundering scheme involving users of “Silk Road,” the Dark Web black market that was ultimately shut down.

[Read Also: Former Bitcoin Entrepreneur Shrem: “I Knew What I Did Here Was Wrong”]

Shrem pleaded guilty to charges of aiding and abetting the operation of an unlicensed money transmitting business, while Faiella pleaded guilty to operating an unlicensed money transfer business.

In entering his plea in September, Shrem told the court that for 11 months in 2012, his company, BitInstant, knowingly helped a man, known to him as BTCKing (Faiella), to process Bitcoin that was then used to buy and sell drugs on Silk Road.

Shrem and Faiella agreed to forfeit $950,000 each to the U.S. government as a part of their plea bargains.

In a tweet, Shrem announced the sentence and his requirement to self surrender in 90 days. “Considering I was facing 30 years, justice has been served,” he said. “On a good note, Judge Rakoff called me a brilliant visionary and that he admires my brainpower.”

Manhattan U.S. Attorney Preet Bharara said: “Charlie Shrem knowingly facilitated the purchase and use of Bitcoins by others to buy illegal drugs on the Silk Road site. He willfully abdicated his duties as compliance officer of BitInstant, putting illegal profit ahead of legal and ethical responsibility. Now Shrem has been made to answer for his crimes.”

“There’s no question that Mr. Shrem, over a period of many months, was knowingly, willfully, and to some extent excitedly, even passionately involved in activity that he knew was a serious violation of the law and that was promoting the evil business of trafficking in drugs,” Judge Rakoff said in imposing the sentence.

[Read Also: Origins of FBI Investigation into Silk Road 2.0 Unclear]

A statement issued by the U.S. Attorney’s Office for the Southern District of New York compiled the allegations contained in the complaint, the indictment, superseding information and statements made in other documents filed in Manhattan federal court and related court proceedings and issued the following timeline of the events surrounding Shrem’s and Faiella’s arrest:

“From about December 2011 to October 2013, Shrem’s co-defendant, Robert M. Faiella, ran an underground Bitcoin exchange on the Silk Road website, a website that served as a sprawling and anonymous black market bazaar where illegal drugs of virtually every variety were bought and sold regularly by the site’s users. Operating under the username “BTCKing,” Faiella sold Bitcoins – the only form of payment accepted on Silk Road – to users seeking to buy illegal drugs on the site. Upon receiving orders for Bitcoins from Silk Road users, he filled the orders through BitInstant, a company based in New York, New York. BitInstant was designed to enable customers to exchange cash for Bitcoins anonymously, that is, without providing any personal identifying information, and charged a fee for its service. Faiella obtained Bitcoins with BitInstant’s assistance, and then sold the Bitcoins to Silk Road users at a markup.

“Shrem was the Chief Executive Officer of BitInstant, and from about August 2011 until about July 2013, when BitInstant ceased operating, he was also its Compliance Officer, in charge of ensuring BitInstant’s compliance with federal and other anti-money laundering (“AML”) laws. Shrem was also the Vice Chairman of the Bitcoin Foundation, a foundation dedicated to promoting the Bitcoin virtual currency system.

“Shrem, who allegedly bought drugs on Silk Road himself, was fully aware that Silk Road was a drug-trafficking website, and through his communications with Faiella, Shrem also knew that Faiella was operating a Bitcoin exchange service for Silk Road users. Nevertheless, Shrem knowingly facilitated Faiella’s business with BitInstant in order to maintain Faiella’s business as a lucrative source of revenue. Shrem knowingly allowed Faiella to use BitInstant’s services to buy Bitcoins for his Silk Road customers; personally processed Faiella’s orders; gave Faiella discounts on his high-volume transactions; failed to file a single suspicious activity report with the United States Treasury Department about Faiella’s illicit activity, as he was otherwise required to do in his role as BitInstant’s Compliance Officer; and deliberately helped Faiella circumvent BitInstant’s AML restrictions, even though it was Shrem’s job to enforce them and even though BitInstant had registered with the Treasury Department as a money services business.

“Working together, Shrem and Faiella exchanged nearly $1 million in cash for Bitcoins for the benefit of Silk Road users, so that the users could, in turn, make illegal purchases on Silk Road.”

 

  • Rita Lawrence

    This is so true. When.you come up against.the govt. they will get the outcome they want. @Koch_Industries sentencing & prison reform iniatives

  • Rita Lawrence

    @Koch_Industries Sr.VP/Chief Counsel initiatives for.sentensing.& prison reform

  • Ammon Ammon

    If you’re talking about roads/bridges there are things we call tolls. If you’re talking about schools we have tuition. If you’re talking about jails … well, this industry needs an overall overhaul from legislation and enforcement all the way to coursts and punishiments.

  • rich godman

    I have an ego but I don’t fancy myself a god.

  • JuanitaRojas

    <3 your god complex.

  • rich godman
  • rich godman

    surrendered what? I wasn’t even in a fight to begin with.

  • JuanitaRojas

    And now you’ve surrendered again. Make up your mind!

  • JuanitaRojas

    You already surrendered, now you’re back to rejecting reality and substituting your own, where internet searches=omniscience?

  • JuanitaRojas

    Hard facts from reality, which you would reject and substitute your own, as always.

  • rich godman

    You need hard facts to make your claims stick.

  • rich godman

    You stink at internet searches plain and simple.

  • rich godman

    prove they aren’t

  • JuanitaRojas

    “Dope fiends are scientifically proven to be rapist” and the earth must revolve around the moon too, in your substitute reality.

  • JuanitaRojas

    Any citation anyone could possibly make that disagrees with your point of view would simply be wiped away by your an ad hominem dismissals of the sources as “nutbars”, “loons”, etc.

  • JuanitaRojas

    Not “available for the general public to see anytime” in libraries which are not open at all times, not “easy” to search for online, and definitely not possible to find every single law in existence. I accept your unconditional admission of non-omniscience and surrender.

  • rich godman

    Can you explain why hookers are legal there but woe be to the guy who gets caught trying to indulge? He’s toast in the legal system. Why?

  • rich godman

    True but it’s still tax bub that makes your world turn.

  • rich godman

    Go to a freakin library they have volumes and volumes of the law books available to the general public also easy to search for online.

  • rich godman

    I’m not defending Charlie. You have solid points, you just seem a bit off in expressing them though. I can’t imagine you commiting three felonies a day because Harvey wrote a nonsense book all most nobody has read. That would be absurd.

  • rich godman

    Never said they didn’t I said harvey’s a loon.

  • rich godman

    All those things are bad and guess what dope fiends are scientifically proven to be rapist and child molesters are prone to commit commit acts of incest.

  • Sam Cru

    Money laundering is a fiction created by a deluded/corrupted legal system.

  • Davis Goodman

    Yes…bitcoin is the absolute epitome of strong, reliable, stable, useful, sane economic infrastructure.

  • JuanitaRojas

    Incest and child molestation are more than a bit off from being morally equivalent to voluntary drug use, which is allegedly the only thing Silk Road facilitated, while banning all else. You need to stop rejecting reality and substituting your own, where incest and child molestation are morally equivalent to voluntary drug use.

  • JuanitaRojas

    Thank you for pretending female prisoners don’t rape each other.

  • JuanitaRojas

    Do you require daily retraining on bowel hygiene? No? Then stop acting like a moron so you can defend the indefensible.

  • JuanitaRojas

    Thanks for rejecting reality and substituting your own.

  • Fellow Traveler

    I live in Switzerland where we have a 2% income tax. We have nice roads, etc. So definitely any tax above 2% is unnecessary. Things are just fine without turning into dust.

  • Fellow Traveler

    I already left.

  • rich godman

    If Charlie had visionary brain power he wouldn’t be going to club fed would he?

  • rich godman

    That’s what Charlie said the judge said. Huge difference between that and actual reality. Charlie has a liberal self narrative akin to Lena Dunham it seems.

  • rich godman

    No disrespect but this line is what confused me as it wasn’t clearly defined. “If you’re a woman, I’ll see you in prison, where we will all learn the hard lesson that is impossible to not be a “criminal” in the US and subject to rape in prison for not victimizing anyone.” That’s why I asked what being a woman had to with your statement.

  • rich godman

    Harvey is a well known nutbar so that’s a washout, and yeah a woman locked with a bunch of men would be a bad thing indeed. I do wonder what would happen to a strapping man being in a woman’s prison?Though that doesn’t really address my question about your odd comment. Overall thank you for being civil with your answers.

  • rich godman

    There printed and available for the general public to see anytime.

  • rich godman

    You need a refresher course sprout your a bit off.

  • JuanitaRojas

    What he accepted at gunpoint was that he could either be raped and eventually die in prison for daring to challenge the existence of victimless “crimes”, or not.

  • JuanitaRojas

    Moral equivalency fallacy.

  • JuanitaRojas

    Yes, it’s “easy” to follow all laws, that no single human can possibly be aware of, let alone understand.

  • JuanitaRojas

    I’ll let Harvey Silvergate expand on that instead of plagiarizing him. http://harveysilverglate.com/Books/ThreeFeloniesaDay.aspx

    I am a woman, so obviously I am not going to be imprisoned with you men.

  • Matt Roach

    “On a good note, Judge Rakoff called me a brilliant visionary and that he admires my brainpower.”

    That’s exactly what the judge said.

  • rich godman

    Sadly you need taxation or things turn to dust.

  • rich godman

    You all better leave the country there coming to take you away hah hah he he ho ho!

  • rich godman

    You understand the whole positive quotes from the judge are bullshit and just Charlie telling tales right?

  • rich godman

    Worked great for Todd Margrett.

  • rich godman

    Spot on. he’s toast. In order to become old and wise first you must be young and stupid.

  • rich godman

    Well if he had the strength to stand for what he believes in he would have pushed for a trail and pled not guilty and could have won if he was in the right. He knew he was guilty so took the easy way out.

  • rich godman

    Can you expand on that? What three felonies do you commit each day and what does being a woman have to do with it?

  • rich godman

    True, you’d get the death penalty.

  • rich godman

    Sure nobody faces 30 years hard time for being a fine upstanding law abiding citizen how silly to think otherwise.

  • rich godman

    Gotta love young libertarian ass backwards logic. It can whitewash anything even incest childmolestation ala lena dunham into a non crime.

  • rich godman

    100% correct sir.

  • rich godman

    Judge never said that.

  • rich godman

    You don’t like regulation and government? Hate life in the us so damn much then renounce your citizenship and get lost.

  • rich godman

    Yes he did. he had a history of screwing over bitcoiners long before he got busted for all this. Remember?

  • rich godman

    Sounds like Charlie is telling fairytales to mytholigize himself. He effed up and got caught copped to a plea bargain because he was sacred shitless. Some revolutionary hero you got there. Breaking laws you can easily follow is also insane. Non-violent does not mean non-criminal action

  • Fellow Traveler

    Certainly the fact that we pay far too much for the outdated monetary infrastructure we are forced to use, does make us victims. But the vulture is the government (not entrepreneurs like Charlie.)

  • Fellow Traveler

    Certainly the fact that we pay far too much for the outdated monetary infrastructure we are forced to use, does make us victims. But the perpetrator is the government (not entrepreneurs like Charlie.)

  • PAUL JOHNSON

    No, its another example of why allowing plea deals is a bad idea. We don’t have them here in the UK, and lawbreaking seems, if anything, less of a problem.

  • PAUL JOHNSON

    You can dispute a great deal. Electronic records are not the last word. Also Martha Stewart’s financial dealings were perfectly legal: she went to prison for lying about them because she was afraid they might be illegal in some way she didn’t know about.

  • Davis Goodman

    The victims are those companies and tax payers who spend a disproportional amount on this infrastructure to carry the parasites along with them who pay nothing.

  • Ask any lawyer. You can not dispute factual electronic evidence. If they had the wrong guy, or they had mistaken evidence, then you may be able to fight it. I have know of many execs guilty of laundering and insider trading. All pled guilty. They had no defense. Martha Stewart is the one big exception of a person who pled innocent. She lost and spent 6 months in jail. And that was only for a $100,000 deal. Charlie is guilty, knew he was commuting a crime, and got caught. No difference than a stock broker or banker who did the same thing.

  • PAUL JOHNSON

    Part of the plea deal is that you have to “accept responsiblity”. You are not allowed to take a plea deal and then say “but I’m really innocent, I’m just pleading guilty because otherwise I’d be risking 30 years in prison”. And the evidence has proved nothing because it was never presented to a jury.

  • PAUL JOHNSON

    Yes, its the Guidelines, but its up to the prosecutors what they charge you with. So they throw the book at you on the charge sheet, and then offer a much lighter sentence if you agree to the plea deal. Basically how much time you spend in jail is up to the prosecutor, not the judge. So its two years for money laundering, and 28 for having the temerity to plead innocent.

  • PAUL JOHNSON

    When the FBI accuses you of financial wrongdoings you have a choice.

    1: Fight the charges. You will spend a year or two with your life on hold and (unless you are worth over $10M) everything you have will be sold to pay the lawyers. At the end of that you might go free, or you might spend most of the rest of your life in a high security jail.

    2: Take the plea deal they offer.

    This is how it is, regardless of how guilty you actually are. And of course the US has so many laws that most people are guilty of something worth significant jail time.

  • Fellow Traveler

    Yet somehow you are completely incapable of showing where there is any victim in all this. Because there is no victim.

  • Ammon Ammon

    Bitcoin is a phenomenal way to execute many legal transactions and will revolutionize transfer of value as a concept. Getting people like Shrek, Faeilla, or organizations like Mt.Gox out of the system the better it becomes. I am for legalizing drugs, free and open transfer of wealth, and the right to non-taxation… but until those laws are in place to make it all legal you have to watch your a55 close if you’re going to try to bend rules. Charlie sees that now, and probably regrets nothing, but wishes he was more careful.

  • It sets a legal precedent on “enabling”.

  • JuanitaRojas

    “Aiding and abetting” victimless “criminals” is not victimless? LMFAO

  • JuanitaRojas

    All of us commit 3 felonies a day on average. Don’t do the crime if you can’t do the time. I’ll see you in prison, where we will all learn the lesson that is impossible to not be a “criminal” in the US.

  • Rassah

    Plea deals are actually reaching a level of outright legal abuse. People are told that there is a solid case against them, are threatened with overly exaggerated sentences, and told they should take a shorter plea deal, and when they do, still get a harsh sentence without possibility to defend themselves. It’s a fairly common practice, especially on poor minorities, and plenty of people were sentenced to prison this way who were later found to be innocent. Private for-profit prisons are only exacerbating this issue. So this usually resulting in lower sentences is suspect, since without such abuse the sentences may often be “not guilty.” Just search around online for plea deal justice abuse.

  • Rassah

    Is this another example of why taking plea deals is a bad idea?

  • Davis Goodman

    The victims are all the other organizations who pay for and compromise to make work the the monetary infrastructure that organizations like bitcoin suck off of like vultures. Those are the people who are scammed.

  • Davis Goodman

    Hahahaha. Victimless? Yes. Suck on the infrastructure that others have set up via licenses, fees and registration and ignore regulations that are designed to avoid money laundering, illegal purchases and the funnelling of money to all sorts of very nasty enterprises. What a beautiful victimless crime.

  • Davis Goodman

    Yes. Money laundering is not a crime if you wear a white collar to work every day.

  • MichaelRWorthingon

    yes very true..and you can also probably have a few ounces of marijuana on you and could get 30 years too. Shooting someone in the head doesn’t cost the Power Elite any money….they don’t care about that. But drug sales on black market, do not produce tax revnue to that is redistributed to the .1%. And they take that very seriously…a smaller yacht and 5% less hookers and blow. They will put you in prison for 100 years for that.

  • MichaelRWorthingon

    There’s no way you are a real person..just saying…must be a plant or a troll or something because no one can be that dumb.

    He pled guilty because had no choice. And every public comment he has made has been approved by (and probably written by) the prosecutors. He has a gun to his head and will do and say whatever he has to so it is not blown off.

  • MichaelRWorthingon

    Wrong (unfortunately). They have expanded the definition of “money laundering” to basically include anything done with money that they don’t like. Anything that hides money is now money laundering…if you take cash and bury it somewhere, that is money laundering too. Of course it is so broad as to mean nothing, which is what they are going for.

  • Justice was not served. Why you ask? 99% of the population probably would have to do the 30 yrs, you were able to buy your way out. Wonder what country club he will be at?

  • Alright, his “crime” was making it easier for others to buy drugs? No victims, as far as I can tell. Clearly, he should have tortured innocent people at the taxpayers’ expense.

  • Sheldon Irving

    And they kept the money

  • SanDiegan59

    Sandras!

  • Icarus

    I could walk out of my house right now and shoot someone in the head for no reason whatsoever and not get 30 years in prison. Of course I won’t do this as I’m a reasonable guy but I think you get the point.

  • Milly Bitcoin

    It was not an ongoing conspiracy and he had no record so I thought he should have gotten probation.

  • Icarus

    2 Years is not leniency. This guy was fucked over in the same way they will come for the rest of us given half the chance.

  • Icarus

    Land of the free ! I’ll bet that supervised release makes sure he touches no computers, almost certainly no Bitcoins, etc so that’s him out of the game for years to come.

  • Icarus

    Fucking outrage !!!

  • redd55

    they only charged him 1 million also!!! can you believe they didn’t fine him more? I would of charged him at least 500 million dollars.

  • redd55

    Charlie is bitcoin famous! he is a bitcoin celebrity !

  • Fellow Traveler

    “makes us all the victim” ??

    Seriously, where is the victim? Who was beaten or robbed or defrauded?

    P.S. Money laundering is where you take “dirty” money and change it into “clean” money, usually through a front company such as a fake barber shop or a car wash, so you can pay taxes on it. Therefore money laundering is the opposite of tax evasion.

  • bvdonjuan

    You need to have a lot of money to be in the banking biz. Littlepeople just need to stay clear – or go to prison.

  • Max Dickstein

    I’d have more sympathy if bitinstant weren’t such a ripoff….I guess I made more money on BTC than Schrem….winning

  • I respect your opinion. Can you explain why you feel that way? Because he empowered criminals? Or something else?

  • Fellow Traveler

    > Unfortunately money laundering and operating an unlicensed MSB is a federal offense.

    Yes, it IS unfortunate that those things are illegal, since they are victimless, and since it results in prosecutors wasting their time imprisoning promising young entrepreneurs instead of murderers and thieves.

    Clearly the take-away from all this is that the law is unjust, and the government is becoming more and more authoritarian.

  • Money laundering the finances of a drug dealer is not victimless. I’m not saying that drugs should be illegal, but they are still controlled by criminals on the dark web. And until drugs are legalized, violent crime is committed on a regular basis. Also tax evasion makes us all the victim by increasing the burden on honest people. I wish there was no need for a dark web drug bazaar and you could get what you wanted at your local pharmacy. But until then, there are and will be victims of illegal drug trade.

  • Unfortunately money laundering and operating an unlicensed MSB is a federal offense. That is why Coinbase and Circle are so anal and monitor their users activity. Compliance is extremely tedious and requires a thorough review of all customers and their activities.

  • Sarah Vivian

    He deserves the death penalty.

  • Fellow Traveler

    Of course he pled guilty, he was facing 30 years in prison. He didn’t commit any wrongdoing. Clearly the legislation is unjust, since prosecutors are now wasting their time imprisoning promising young entrepreneurs instead of murderers and thieves.

  • CryptoReporter

    Obama? No jail time. Holder? No jail time. Bush? No jail time. Cheney? The list goes on and on and on.

  • Fellow Traveler

    > Why do you say what he did was victimless?

    Who was the victim?

  • Fellow Traveler

    He didn’t commit any wrongdoings.

  • Fellow Traveler

    Yeah so if an innocent person goes to prison for 2 years, for nothing more than selling some Bitcoins, then he actually got a GOOD deal, since he should feel lucky it wasn’t for 30 years?

  • Fellow Traveler

    > you are ignoring the fact that Mr. Shrem is accepting full responsibility for his conduct here

    Shrem’s only alternative was 30 years in prison. Under that kind of pressure you could probably get him to admit guilt to all sorts of things he’s innocent of.

  • Matt Roach

    “I admire and respect you because you’re brilliant and a visionary. NOW YOU GET IN JAIL!!!!”

    Fuck government. Violently insane religious zealots who make other men their gods.

  • Fellow Traveler

    This is an absolute travesty of justice. All Charlie did was sell some Bitcoins. That’s it! For a young man at the age of 25, a promising entrepreneur, to spend 2 years of his life in prison, having not done any violence or fraud, having no victims, it’s just terrible what the government has done to Shrem. Absolutely unconscionable. We know this plea deal only happened because there is no longer justice in the USA and they were threatening him with 30 years in prison. I encourage all US-based entrepreneurs, especially those in crypto-related professions, to consider relocating their businesses overseas.

  • Bullocks!

  • Why do you say what he did was victimless? This had nothing to do with bitcoin. If he was trading any form of currency or tokens without a license, it would have been the same penalty. And aiding and abetting criminals is not victimless.

  • owlcatz

    He plead guilty to helping aid an unlicensed MSB. He’s plead guilty and accepted full responsibility. Don’t do the crime if you can’t do the time. Charlie has learned a hard lesson but will prevail, trust me.

  • When the FBI finds solid evidence on financial wrongdoings, there is no defense. Same goes for insider trading and such. His lawyers advised him correctly. If he went to trial, (he had no case), he would have been found guilty anyway and been sentenced to much more time. Pleading saves a lot of time and money and usually results in lower sentences. But you knew that.

  • owlcatz

    it’s actually Federal Sentencing Guidelines. Google is your friend.

  • owlcatz

    I’m sorry, but you are ignoring the fact that Mr. Shrem is accepting full responsibility for his conduct here – perhaps you should read more about the specific case without coming off some armchair lawyer. He is guilty, he admits it, the evidence proves it. Let him move on, and, yes it’s called federal sentencing guidelines btw – go do more homework genius.

  • Jabber0ne

    The 30 year thing sounds like blackmail. I was surprised by the guilty plea. Big issue is that Govt has unlimited funds to prosecute with our tax dollars.

  • JuanitaRojas

    It is the system those who count the votes vote for.

  • Brad Sherard

    Considering that federal prosecutors threaten defendants with sentences sometimes as high as 20 times the guilty plea bargain ‘reduced’ sentence, its probably the best thing he could hope for. It is standard practice for the feds to threaten people with grotesque sentences of 20 or 30 years for these sorts of things. This is to keep the defendant from going to trial with a ‘not guilty’ plea. So instead of actually proving guilt, they just scare people into choosing ‘guilty’ to avoid the risk of losing the rest of their life in a torture/rape room. The feds in return get to keep their high rate of ‘success’ while keeping 90% of cases out of the court room.

    So now it is justice that a man loses 2 years of his life for not having the right license and didn’t even go to trial because he would have otherwise risked 30 years. That is justice. It is the system you vote for.

  • JuanitaRojas

    Because fuck the 8th Amendment. Prosecuting victimless criminals causes a chilling effect on any use of bitcoin whatsoever.

  • FreeJack

    Citigroup and JP Morgan Chase execs? No jail time.

  • I guess they realize Charlie Shrem was not a crook, but an entrepreneur and, to some extent, an idealist, but not a bad person who deserves the worst of punishments.

  • Tony

    🙁

  • Victoria

    Eek.

  • solid12345

    Actually it’s a good deal, most federal sentences are harsh, like 5-15 years or more.

  • lunartune

    Sound like a shitty deal to me

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