arrested for selling bitcoin

[SnowGlobe7]

http://www.nbcnews.com/technology/two-men-arrested-selling-bitcoins-connection-defunct-silk-road-site-2D11999981

 

 

 

 

Authorities have arrested two men for allegedly scheming to sell $1 million worth of bitcoins to anonymous drug buyers using the now-shuttered online drug exchange Silk Road.

In a 27-page complaint filed Friday and made public on Monday, authorities accused Robert Faiella and Charlie Shrem with money laundering and other charges related to facilitating illegal activity on Silk Road.

Silk Road, created in 2011, served as an anonymous online marketplace for illegal products and services including drugs. The FBI shut down the site in early October 2013, calling it “the most sophisticated and extensive criminal marketplace on the Internet today.”

Silk Road users could use only the digital currency bitcoin, which is difficult to trace. That’s where Faiella and Shrem allegedly came in, according to the complaint.

According to the attorney’s office, Faiella ran a bitcoin exchange on the Silk Road site from about December 2011 to October 2013. Faiella allegedly took bitcoin orders from Silk Road users and filled the order through a company called BitInstant -- which, for a fee, lets customers exchange cash for bitcoin anonymously.

Shrem was the CEO of BitInstant until it shut down in July 2013. For a time he also served as the company’s chief compliance officer. The complaint alleges Shrem personally bought drugs on Silk Road, and that he helped Faiella facilitate illegal business without reporting it. 

The pair allegedly split ways in late 2012, when Shrem’s company stopped accepting cash payments. But Faiella allegedly came back to Silk Road a few months later without Shrem’s help, and exchanged “tens of thousands of dollars a week” in bitcoin until Silk Road was shut down in October 2013.

“When bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act,” said Manhattan U.S. Attorney Bharara said in the statement. “We will aggressively pursue those who would co-opt new forms of currency for illicit purposes.”

The complaint charges both Faiella and Shrem with conspiring to commit money laundering and operating an unlicensed money transmitting business. The former charge carries a maximum sentence of 20 years in prison, while the latter can result in 5 years in prison.

Shrem received an additional charge of willfully failing to file a suspicious activity report regarding Faiella’s transactions through his company, which carries a five-year maximum sentence.

Shrem was arrested Sunday at New York’s John F. Kennedy Airport, Robert Faiella at his Cape Coral, Fla., home on Monday. Shrem is expected to appear in Manhattan federal court later on Monday, while Faiella will appear at some point in federal court in Florida.

Julianne Pepitone is a senior technology writer for NBC News Digital. Previously she was a staff writer at CNNMoney, where she covered large tech companies including Apple and Google, as well as the intersection of tech and media

Edited January 27, 2014 by SnowGlobe7

[SnowGlobe7]

http://venturebeat.com/2014/02/14/flaw-in-bitcoin-exchange-shutdowns-2-7-million-theft-is-the-end-coming/

 

re the end-times coming to Bitcoin? Putting aside the wild rides in valuation, the last few days have seen the three top exchanges halting withdrawals, a reported heist of $2.7 million, and the exploitation of a flaw in the Bitcoin protocol.

Silk Road 2.0, a black market drug-trading site based on untraceable Bitcoins, reports that 4,474 Bitcoins, valued at about $2.7 million, have been stolen from the site. The virtual currency is encrypted computer code that is stored in a virtual wallet, and only a limited number of Bitcoins are created.

The site’s administrator, who goes by the name of Defcon, posted that “a vendor exploited a recently discovered vulnerability in the Bitcoin protocol known as ‘transaction malleability’ to repeatedly withdraw coins from our system until it was completely empty.” The coins were apparently stored onsite in escrow.

The flaw in the Bitcoin protocol enables an attacker to hide the transaction ID and repeatedly request a transfer of the pseudo-currency. Silk Road 2.0 used the transaction ID as the sole transaction confirmation, but the flaw was reportedly made public in 2011. The site is the successor to the original Silk Road, which the FBI shut down last year.

The three biggest Bitcoin exchanges — BitStamp, Mt. Gox and BTC-e — all halted trading temporarily in the last few days. BitStamp and Mt. Gox account for more than half of all traded Bitcoins.

‘In its infancy’

On Tuesday, Slovenia-based BitStamp, the largest Bitcoin exchange, stopped customer withdrawals after saying it was under a denial-of-service attack, which it said caused “inconsistent results reported by our Bitcoin wallet.”

The attack, the exchange said, was “made possible by some misunderstandings in Bitcoin wallet implementations,” apparently related to the same protocol flaw that Silk Road encountered. BTC-e, a Bulgaria-based exchange, also stopped trading temporarily this week. Both BitStamp and BTC-e have said they will resume trading today.

Last Friday, Mt. Gox issued a temporary ban on Bitcoin withdrawals.

The Tokyo-based exchange issued a statement that “a bug in the Bitcoin software makes it possible for someone to use the Bitcoin network to alter transaction details to make it seem like a sending of Bitcoins to a Bitcoin wallet did not occur when in fact it did occur.”

Mt. Gox chief executive Mark Karpeles said Thursday that there was a mismatch between the exchange’s customized Bitcoin wallet and the updates coming from the Bitcoin Foundation. The Bitcoin Foundation has disputed that assertion.

Some Bitcoin-watchers have pointed to a whole range of issues with Mt. Gox in particular and the Bitcoin system in general.

Micky Malka, a venture capitalist, told Reuters this week that “Bitcoin is still an experimental protocol in its infancy.” He added that “no one should be investing an amount they cannot afford to lose.”

Malka, by the way, is a board member of the Bitcoin Foundation.