BitInstant CEO Arrested for Alleged Ties to Silk Road BitInstant CEO Charlie Shrem and underground Bitcoin exchanger Robert M. Faiella have been charged with using bitcoins to buy and sell illegal drugs to Silk Road users.

By Cadie Thompson

entrepreneur daily

Two executives of a bitcoin exchange have been arrested on charges of selling bitcoins to be used to buy and sell illegal drugs anonymously, according to a statement from the Manhattan U.S. attorney's office.

The two arrested were Charlie Shrem, CEO of BitInstant, and Robert M. Faiella, an underground Bitcoin exchanger.

According to the statement, both men are accused of participating in a scheme to sell more than $1 million in Bitcoins to users of "Silk Road," the underground website that allowed people to anonymously buy and sell illegal drugs.

"The charges announced today depict law enforcement's commitment to identifying those who promote the sale of illegal drugs throughout the world. Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way," said James J. Hunt, the DEA acting special agent in charge of the case, in the statement.

Shrem was also charged with failing to file any suspicious activity regarding Faiella's illegal transactions. He is also listed as a board member of the Bitcoin Foundation, which is an organization that works to standardize and promote the use of bitcoins.

BitInstant's website is currently down.

(Read more: New York state to mull bitcoin licensing proposal)

Shrem was arrested Sunday at John F. Kennedy International Airport in New York and Faiella was arrested Monday at his home in Cape Coral, Fla.

CNBC reached out to Shrem's lawyer for comment, but has not yet received a response. And the Manhattan U.S. attorney's office does not yet have the name of Faiella's attorney.

BitInstant's backers include the Winklevoss twins, who have a number of investments in bitcoin start-ups.

Cadie Thompson covers all things tech for CNBC.com. She has also written and produced for NetNet -- where she covered Wall Street -- and Consumer Nation, where she wrote about trends in consumer technology.

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