NEW YORK — The top executive of a New York City-based Bitcoin company and a Florida Bitcoin exchanger have been charged with conspiring to commit money laundering by selling more than $1 million in Bitcoins to users of the black market website Silk Road, authorities said Monday.
Charlie Shrem, 24, chief executive of BitInstant and vice chairman of a foundation that promotes the Bitcoin currency system, was arrested Sunday at Kennedy International Airport, and Robert Faiella was arrested Monday at his home in Cape Coral, Fla., prosecutors said.
Faiella and Shrem conspired to sell more than $1 million in Bitcoins to criminals who wanted to sell narcotics on Silk Road between December 2011 and October, US Attorney Preet Bharara said in a release.
‘‘Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act,’’ Bharara said.
Over the objection of prosecutors, US Magistrate Judge Henry B. Pitman allowed Shrem to be released on bail, though he required him to submit to electronic monitoring and live with his parents in Brooklyn. They were required to post nearly $1 million in property as collateral.
Assistant US Attorney Serrin Turner said Shrem ‘‘has held himself out as a ‘Bitcoin millionaire’’’ who was ready to flee rather than face charges.
Turner said the nature of the Bitcoin industry meant that Shrem had a ‘‘storage locker in the clouds’’ with money to facilitate flight. He added that Shrem had traveled internationally 16 times since 2007.
Turner played a video interview of Shrem posted online in which the Manhattan resident boasted that if the government tried to make arrests or take down companies that promote the use of Bitcoin, ‘‘I have a plane ticket ready to take me to Singapore. There’s another corporation already set up.’’
Shrem’s defense lawyer, Keith Miller, said there were other videos of his client saying that everybody involved with virtual currency should comply with the law. In setting bail conditions, Pitman said he appreciated that ‘‘sometimes people make statements on video that may or may not carry weight.’’
As the bearded Shrem entered court in a hooded sweatshirt, he waved to his family.
Federal prosecutors in New York said Shrem bought drugs on Silk Road and was fully aware it was a website that let users buy illegal drugs anonymously, among other contraband.
According to prosecutors, Faiella operated under the name ‘‘BTCKing’’ as he ran a Bitcoin exchange on the Silk Road website.
It wasn’t immediately clear who would represent Faiella in court.
Authorities have said Silk Road’s San Francisco operator generated more than $1 billion in illicit business from January 2011 through September on the website, which used Bitcoin, the tough-to-track digital currency, before it was shut down.
The website, which had nearly 1 million registered users by July, let users anonymously browse through nearly 13,000 listings under such categories as cannabis, psychedelics, and stimulants.
It was shut down with the arrest of Ross William Ulbricht, who authorities say masterminded the operation.
He has pleaded not guilty.