• Sat. Feb 17th, 2024

Went to jail for crypto crime. Now he is a compliance lawyer.

Went to jail for crypto crime.  Now he is a compliance lawyer.

As crypto entrepreneurs like FTX co-founder Sam Bankman-Fried and former Celsius CEO Alex Mashinsky face criminal charges of misconduct and possibly jail time, one of the Justice Department’s earliest callers has a message for today’s players: Be compliant.

As crypto entrepreneurs like FTX co-founder Sam Bankman-Fried and former Celsius CEO Alex Mashinsky face criminal charges of misconduct and possibly jail time, one of the Justice Department’s earliest callers has a message for today’s players: Be compliant.

Charlie Shrem was an early apostle of cryptocurrency, earning millions of dollars trading Bitcoin and being treated like a rock star around the world, with fans snapping photos of him and shoving business cards at him at conferences. But BitInstant’s one-time chief executive and compliance officer went to prison in 2015 for a drug scheme involving the bitcoin exchange and online black market he co-founded.

Hi! You are reading a premium article

Charlie Shrem was an early apostle of cryptocurrency, earning millions of dollars trading Bitcoin and being treated like a rock star around the world, with fans snapping photos of him and shoving business cards at him at conferences. But BitInstant’s one-time chief executive and compliance officer went to prison in 2015 for a drug scheme involving the bitcoin exchange and online black market he co-founded.

Today, the 33-year-old says he’s mining his experience and pushing the latest generation of crypto companies to put in place safeguards against corporate malpractice.

“There’s a bunch of people out there wrestling with the crypto compliance beast, trying to figure it all out with their lawyers,” said Schrem, now a general partner at venture-capital firm Druid Ventures, which advises crypto startups and projects on strategy and growth. “That’s where I come in.

Alexander J., a former prosecutor in the Southern District of New York who oversaw Shrem’s conviction in 2014 and is now a partner at the law firm Jones Day. According to Wilson, a convicted crypto-lawyer is just what the Justice Department needs. The Justice Department viewed the purpose of enforcement and criminal prosecutions like Schrems as a way to push the crypto industry into a regulated system with money laundering and sanctions compliance programs, rather than a gray area where criminals and terrorists operate, Wilson said.

Shrem’s attorney in the case, Mark Agnifilo of Brafman & Associates, did not respond to a request for comment. A spokesman for the US Attorney’s Office for the Southern District of New York declined to comment.

In the early days of bitcoin, Schrem said he was fascinated by the blockchain technology underlying virtual currencies. But what attracted him was the online community surrounding the renaissance area. “I realized the promise of what Bitcoin could actually do was far-fetched, but I enjoyed being a part of something,” he wrote in an email.

While still in college, Shrem and a business partner started crypto payments company BitInstant in 2011 with $10,000 from Shrem’s mother. The company met the demand at the time for faster bitcoin transactions, and Shrem quickly became one of the first bitcoin millionaires. At one point, BitInstant was talked about in the same breath as Coinbase, and the company received funding from Winklevoss Capital Management.

In 2013, the Treasury Department’s Financial Crimes Enforcement Network said digital assets and exchanges should begin following the same money-laundering rules as traditional money-order providers.

Schrem said his company relies heavily on compliance programs at partner crypto exchanges to ensure transactions are secure. The company took photo identification from those trading on the platform, maintained customer data and consulted lawyers on protocols, he said.

No one knows exactly what compliance means, he said. “We took the IDs and obeyed what we thought was right.”

In January 2014, Schrem—who was scheduled to be a headliner at the annual Bitcoin Bash in Miami—was replaced by New York’s John F. He was arrested at Kennedy International Airport and charged with laundering illegal funds from the dark-web black market Silk Road. Robert Faiella, an underground bitcoin exchanger, was also arrested.

Shrem has been charged with three counts of conspiracy to commit money laundering, operating an unlicensed money-transmitting business and willful failure to file a suspicious activity report. In September 2014, he pleaded guilty to aiding and abetting the operation of an unlicensed money transfer business used on the Silk Road. He was sentenced to two years in prison, but served more than one in a minimum-security facility in Lewisburg, Pa.

Since Shrem’s arrest, some in the crypto sector have sought to establish stronger compliance programs as the industry evolves from a trailblazer to mass adoption. But regulators remain skeptical of some such efforts.

Timothy Howard, a former US prosecutor in the Southern District of New York who oversaw the unit that prosecuted Shrem, called the action a landmark case in early crypto enforcement that set a precedent for treating crypto like money. Prosecutors used tools commonly used by financial institutions to pursue companies and individuals in the digital currency sector for crimes such as money laundering and failure to file suspicious activity reports, he added.

Since then, the Justice Department has stepped up policing crypto, training prosecutors and devoting resources to detecting transactions as cybercrime, said Howard, who left the U.S. attorney’s office a year ago.

After his prison stint, Schrem said he didn’t expect to be involved in crypto again, but his time inside forced him to rethink his role in the digital-asset industry and advocate for guardrails.

Schrem says he’s proud of the work he did to encourage Byte Federal, a maker and operator of bitcoin ATMs, to obtain a money-transmitter license in Florida to ensure its growth.

ByteFederal co-founder Lennart Lopin said he did not recall whether Schrem, a minority shareholder in the startup, provided direct regulatory advice. Lopin met Schrem at a crypto meetup in Sarasota, Fla., shortly after Schrem moved there. Shrem’s personal story and incarceration prompted Byte Federal to contact regulators early and obtain the necessary licenses, Lopin said.

“His arrest was one of those moments when everybody started thinking that we live in an environment of laws and rules,” Lopin said.

In addition to Shrem’s work at Druid Ventures, hosting a podcast about crypto investing, he produces films, including the romance “Ask Me to Dance,” available to stream on digital platforms. After his release from prison, he also started writing his autobiography.

“I wasn’t a compliance guy and that’s why I ended up where I fell,” Shrem said, comparing the lack of compliance in crypto to scuba diving without gear. If his adventures have taught him anything, it’s this: “Even if you’re small, you don’t want to be on the wrong side of things.”

Leave a Reply

Your email address will not be published. Required fields are marked *