NEW YORK (PIX11) – The U.S. dollar is legal tender, but a new federal criminal case involves a different type of currency, coupled with alleged activity that is anything but legal. The CEO of a Bitcoin exchange company, Charlie Shrem, 24, is under house arrest on $1 million bond after being charged with money laundering as part of an illegal drug ring.
His case puts the use — and possible misuse — of Bitcoins at the center of a federal legal situation, on the eve of a New York State government hearing on the use of the virtual currency.
Bitcoins are a currency system that is completely web based. Like the dollars spent by practically every American and most governments and corporations worldwide, Bitcoins have value, even though they only exist online. As of Monday, one Bitcoin was worth more than $700, and Bitcoins are used used to buy and sell many products online, such as software, or even illegal drugs.
Federal agents arrested Shrem, the CEO of a company that exchanges this web-based currency, at JFK Airport on Sunday. He was accused of being part of a scheme to sell the million dollars worth of Bitcoins to users of the underground website Silk Road in order to buy illegal drugs. Essentially, according to the federal complaint against him and his alleged accomplice Robert Faiella, the two were laundering money through the use of Bitcoins.
“I’m not saying he’s not a criminal,” said the owner of a newsstand on East 34th Street that accepts Bitcoins, but no credit cards. “But you can do the same thing with cash,” said the the shopkeeper, who goes by the name Kay.
Like many users of the virtual currency, Kay said that Bitcoins are not the problem. It’s a point that a newly opened organization that promotes and sells Bitcoins, the Bitcoin Center, agrees with.
The deputy director of the center, which opened on the first of the year four doors down from the New York Stock Exchange, said that Bitcoins are far better than dollars or other paper currencies in stopping money laundering.
“With Bitcoin you can track every single transaction made with it in history,” said Austin Alexander. “Bitcoin is a way to prevent these types of things, once the technology is fully known.”
A federal judge late Monday afternoon gave Shrem $1 million bond, which had to be co-signed by his parents. The young CEO was also ordered into home detention and a drug treatment program.
The New York State Department of Financial Services will hold two days of hearings on the use of virtual currency beginning on Tuesday at 90 Church Street in Lower Manhattan. This arrest is not on the agenda, although it’s being followed by many state regulators.