BitInstant CEO arrested by FBI

[Nagle]

Two bitcoin exchange operators charged in money laundering scheme

Reuters:

"Federal prosecutors in New York announced charges against Charlie Shrem and Robert Faiella, both operators of bitcoin exchange businesses, for attempting to sell $1 million in the digital currency to users of the underground black market website Silk Road, which was shut down by authorities in September.

According to the charging document, Shrem, 24, chief executive officer of the exchange BitInstant.com, changed cash into bitcoins for Faiella, 52, who ran an underground bitcoin exchange through the username BTCKing on Silk Road's website. The criminal complaint says that Shrem, in addition to knowing that Faiella's business was funneling money into Silk Road, also used Silk Road himself to buy drugs."

[TheButterZone]

More victimless "criminals" having the boot stamping on their face forever. Just a matter of time before every single localbitcoins seller is prosecuted for not harming anyone, because "economic liberty must be destroyed"!

[BTC5OOO]

More victimless "criminals" having the boot stamping on their face forever. Just a matter of time before every single localbitcoins seller is prosecuted for not harming anyone, because "economic liberty must be destroyed"!

this dude it sounds like he was deep in the game + was he an Iranian national?..some connection he name dropped PIA in relation to political fringe groups getting funded with bitcoins back in 2012! :\

[TheButterZone]

Iran? Pakistan International Airlines? Gotta love racially-motivated prosecution! Fits perfectly with their "everyone in Pakistan is a terrorist because we drone striked them!" propaganda.

[Foxpup]

This has nothing to do with his nationality, nor is it a crackdown on bitcoin exchanges in general or BitInstant in particular. Here's the smoking gun:

"You are hereby banned from our services," he wrote in an email to BTCKing that he copied to Nelson.

According to the complaint, Shrem then privately wrote to BTCKing, without including Nelson. "Your email address is banned," Shrem wrote, "but you can use a different one."

If that's true, there's nothing more to be said. You can't make a point of banning someone for illegal activity, then tell them on the down-low that they're not really banned after all and that their illegal activity is A-OK as long as everyone thinks they're banned. That's not a good strategy for staying out of prison.

[empoweoqwj]

wow - Charlie Shrem was a "player" on Silk Road? Wonders never cease. Who's next on the list of bitcoiners that were into SR and hope they never get found out?

[moni3z]

FBI is data mining the blockchain, since the blockchain was never designed for anonymity they can get a lot of information. Also this arrests means few things:

• FBI has informants
• FBI has good programmers working on the Bitcoin
• They most likely already have a copy of all major bitcoin websites

If you read the complaint, all they did was buy bitcoins off the SR vendor.
That led them to his email "BTCking@safe-mail"
Since safe-mail is not safe, nor encrypted, the feds obtained his entire inbox
Nothing was deleted or encrypted so every single email Shrem sent to this guy was sitting there waiting for the FBI.

No magic FBIz blockchain mining or informants were needed. Seize email inbox, read emails.

[empoweoqwj]

FBI is data mining the blockchain, since the blockchain was never designed for anonymity they can get a lot of information. Also this arrests means few things:

• FBI has informants
• FBI has good programmers working on the Bitcoin
• They most likely already have a copy of all major bitcoin websites

If you read the complaint, all they did was buy bitcoins off the SR vendor.
That led them to his email "BTCking@safe-mail"
Since safe-mail is not safe, nor encrypted, the feds obtained his entire inbox
Nothing was deleted or encrypted so every single email Shrem sent to this guy was sitting there waiting for the FBI.

No magic FBIz blockchain mining or informants were needed. Seize email inbox, read emails.

So he was a vendor at SR? The report I read said he was a "buyer". A vendor makes much more sense of course.

Very interesting that the FBI just happened to "hit upon" one of the big players in bitcoin though. Makes me think:
1) They have details of lots of SR sellers, and are starting with the "big fish".
2) There are lots more arrests to come

[moni3z]

FBI is data mining the blockchain, since the blockchain was never designed for anonymity they can get a lot of information. Also this arrests means few things:

• FBI has informants
• FBI has good programmers working on the Bitcoin
• They most likely already have a copy of all major bitcoin websites

If you read the complaint, all they did was buy bitcoins off the SR vendor.
That led them to his email "BTCking@safe-mail"
Since safe-mail is not safe, nor encrypted, the feds obtained his entire inbox
Nothing was deleted or encrypted so every single email Shrem sent to this guy was sitting there waiting for the FBI.

No magic FBIz blockchain mining or informants were needed. Seize email inbox, read emails.

So he was a vendor at SR? The report I read said he was a "buyer". A vendor makes much more sense of course.

Very interesting that the FBI just happened to "hit upon" one of the big players in bitcoin though. Makes me think:
1) They have details of lots of SR sellers, and are starting with the "big fish".
2) There are lots more arrests to come

He was the top BTC vendor on SR for selling coins. All the feds had to do was make an order and ask trustcash (payment processor) who's email address was used to sign up for the service, then seize the inbox and read all the unencrypted Shrem laundering emails. BTCKing apparently used his profits to get high out of his gourd on SR narcotics which is probably why he was so sloppy and prone to clusterfuckness

[empoweoqwj]

Ah right. Thx for info. Amazingly simple. Not even using encrypted email. That really isn't very smart.

[MysteryMiner]

Ah right. Thx for info. Amazingly simple. Not even using encrypted email. That really isn't very smart.

Dooh, how many people actually are willing and able to use PGP? People who cannot buy bitcoins themselves and need BTCking? And even PGP leaves trace who is communicating.

[empoweoqwj]

Ah right. Thx for info. Amazingly simple. Not even using encrypted email. That really isn't very smart.

Dooh, how many people actually are willing and able to use PGP? People who cannot buy bitcoins themselves and need BTCking? And even PGP leaves trace who is communicating.

Lots of people use encrypted email. Particularly advisable if you are laundering drug money.

[TheButterZone]

Ah right. Thx for info. Amazingly simple. Not even using encrypted email. That really isn't very smart.

Dooh, how many people actually are willing and able to use PGP? People who cannot buy bitcoins themselves and need BTCking? And even PGP leaves trace who is communicating.

Lots of people use encrypted email. Particularly advisable if you are laundering drug money.

Or exercising any civil liberty whatsoever (they're all "illegal").

[leopard2]

BTCking claimed that selling btc for cash is legal, if you read the complaint

So why should he have used PGP et cetera?

Was there any Fincen directive in 2012, saying that it isn't? No.

http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

Of course he could not know that 2 years later the rules were changed retrospectively

In 1932 owning gold was legal and in 1933 it was made illegal, bad for you if you bought gold and your name was on the jeweler's client list  

[DeathAndTaxes]

Nobody has said selling Bitcoins for cash is illegal.  It might help if you stopped making stuff up and actually read the complaint.

[leopard2]

Nobody has said selling Bitcoins for cash is illegal.  It might help if you stopped making stuff up and actually read the complaint.

A complaint, by definition, is stuff made up (and so are laws, except the laws of physics)

Just that the entity making it up, has lots of firepower.

[DeathAndTaxes]

Nobody has said selling Bitcoins for cash is illegal.  It might help if you stopped making stuff up and actually read the complaint.

A complaint, by definition, is made up stuff

Even if true, nobody has still claimed selling Bitcoins for cash is illegal.  Even in the "made up complaint" that was never stated.

[danieldaniel]

Nobody has said selling Bitcoins for cash is illegal.  It might help if you stopped making stuff up and actually read the complaint.

A complaint, by definition, is made up stuff

Even if true, nobody has still claimed selling Bitcoins for cash is illegal.  Even in the "made up complaint" that was never stated.

I've given up on the Bitcoin community's common sense long ago.

[leopard2]

Nobody has said selling Bitcoins for cash is illegal.  It might help if you stopped making stuff up and actually read the complaint.

A complaint, by definition, is made up stuff

Even if true, nobody has still claimed selling Bitcoins for cash is illegal.  Even in the "made up complaint" that was never stated.

so the CEO got arrested for supplying BTC to someone who does legal cash sales?   I don't get it.

Fincen directive is from 2013 in case you haven't noticed. Before March 2013 Fincen stuff was not applicable to crypto, was it?

But I give up you got more time than me - you win - whatever you say. 

[empoweoqwj]

BTCking claimed that selling btc for cash is legal, if you read the complaint

So why should he have used PGP et cetera?

Was there any Fincen directive in 2012, saying that it isn't? No.

http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

Of course he could not know that 2 years later the rules were changed retrospectively

In 1932 owning gold was legal and in 1933 it was made illegal, bad for you if you bought gold and your name was on the jeweler's client list  

The FBI has read his (unencrypted) inbox. I think you might find a lot of talk in there about stuff other than just "selling btc for cash". Just a guess