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Bitcoin entrepreneur Charlie Shrem sentenced to prison for drug website scheme

Bitcoin entrepeneur Charlie Schrem leaves Manhattan Federal Courthouse

Bitcoin entrepeneur Charlie Schrem leaves Manhattan Federal Courthouse on Friday, Dec. 19, 2014 after being sentenced to two years in prison and three years of supervised release after pleading guilty to charges of aiding and abetting the operation of an unlicensed money transfer business. Photo Credit: Agaton Strom

Bitcoin entrepreneur Charlie Shrem was sentenced to 2 years in federal prison Friday for aiding a scheme to sell the virtual currency to users of an illegal-drug website.

Shrem, 25, lost an effort to get only probation by blaming the crime on youth and inexperience.

"I broke the law, and I broke it badly," he told Manhattan U.S. District Judge Jed Rakoff. "I was a very immature kid."

Shrem, a celebrity whiz kid who founded a "bitcoin bar" and the trading startup BitInstant, headed a pro-bitcoin foundation and was profiled on CNN, was charged in January with supplying bitcoins in 2011 and 2012 for the online drug bazaar Silk Road.

He pleaded guilty in September to aiding the operation of an unlicensed money transmission business, and faced up to five years in prison. Federal sentencing guidelines called for him to spend 57 to 60 months in prison.

Prosecutor Serrin Turner said that while Shrem was only 22 when the crime occurred, the case essentially involved facilitating drug sales, and as one of the first involving bitcoins the sentence would send an important message to the emerging digital marketplace.

"The defendant's crime is a serious one, no less than if it had happened in real space instead of in cyberspace," he told Rakoff. "Unless these businesses get the message that these laws are not a joke, then this court will miss a valuable opportunity."Rakoff said he thought the five-year maximum was too high, but probation was too low because Shrem knew he was "promoting the evil business of trafficking in drugs" with a little-understood new digital currency.

"The very innovativeness of it made it a danger to controlling drug trafficking," Rakoff said.

Shrem, of Brooklyn, and co-defendant Robert Faiella, of Cape Coral, Florida, allegedly processed nearly $1 million in bitcoins for users of Silk Road, now shut down.

Bitcoins are helpful on underground sites because they can be bought and sold anonymously without going through banks, hiding illegal transactions from law enforcement.

Shrem stopped supplying bitcoins for Silk Road users before he was arrested, and told Rakoff he was an idealist committed to making sure the industry he pioneered goes down a legitimate path after his sentence is over.

"Bitcoin is my baby," he said. "It's what I love. It's what I was put in this world to do."

Shrem was also ordered to forfeit $950,000. Faiella will be sentenced in January.

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