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Bitcoin drug case ends in 2 guilty pleas

Charles Shrem, center, the top executive of a

Charles Shrem, center, the top executive of a New York-based Bitcoin company, walks from the federal court house in Manhattan on Thursday, Sept. 4, 2014, after pleading guilty to federal charges that he helped smooth the way for drug transactions on an online marketplace. Credit: AP

Bitcoin whiz kid Charles Shrem pleaded guilty Thursday to helping another man sell the virtual currency for use on a drug website, but his lawyer said he hopes to jump back into the digital cash business when his legal troubles are over.

Before he was charged in January with helping co-defendant Robert Faiella sell bitcoins to users of the Silk Road drug-exchange site, Shrem, 24, had founded a "bitcoin bar" and the trading startup BitInstant, headed a pro-bitcoin foundation and was profiled on CNN.

"The criminal conduct was an aberration," said Shrem's lawyer, Marc Agnofilo. "He wants to get back on the path to making bitcoin what it should be -- a global economic currency. If God smiles on him, hopefully he'll be back on the bitcoin path."

In back-to-back pleas in federal court in Manhattan, Faiella, 54, of Cape Coral, Florida, pleaded to operating an unlicensed money transfer business on the Silk Road site, and Shrem said he aided and abetted Faiella, known online as BTCKing, by supplying bitcoin.

Because both men admitted they knew the bitcoin they supplied was being used for drug transactions, federal sentencing guidelines call for each to be imprisoned from 57 to 60 months. The maximum sentence for operating an unlicensed money business is 5 years.

"I knew the funds BTCKing was transmitting to his customers were intended to promote and support criminal activity," Shrem, of Brooklyn, told U.S. District Judge Jed Rakoff. "I knew what I did here was wrong. I am pleading guilty because I am guilty."

Prosecutors alleged that Faiella took orders on Silk Road for bitcoins they could use in drug deals, and filled the orders with Shrem's company, which sold bitcoins for cash in anonymous transactions.

Over about a year in 2011 and 2012, the government said, the two processed nearly $1 million in bitcoins for Silk Road users.

"Robert Faiella and Charlie Shrem opted to travel down a crooked path, running an illegal money transmitting business that . . . cost them a lot more than they bargained for and bought them today's convictions," Manhattan U.S. Attorney Preet Bharara said in a statement.

Faiella, his lawyer and Shrem did not comment after the pleas. Agnofilo said he hoped Rakoff would show leniency and impose a sentence below the guidelines, noting that, while "what he did was wrong," Shrem was "one step removed from Silk Road" and was out of step with his efforts to operate bitcoin businesses within the law.

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