Charlie Shrem, the chief executive officer of bitcoin exchange BitInstant, has been arrested and charged with money laundering.

Shrem was arrested at JFK airport on 26 January and was also charged, along with alleged co-conspiratior Robert Faiella, of selling more than $1 million (£600,000) worth of bitcoins to users of Silk Road, the website formerly operating as an anonymous drugs and ammunitions marketplace, and where bitcoin was the only accepted currency.

BitInstant is currently offline and was recently subjected to a class-action lawsuit, alleging the site of misrepresenting the speed of its services.

Shrem, 24, is also listed as a founding member and vice chairman of the Bitcoin Foundation, where he is praised with "paving the way for the bitcoin economy to emerge in early 2011."

Conspiring to commit money laundering

Both Shrem and Faiella, 52, are charged with conspiring to commit money laundering and operating an unlicensed money transmitting business, a press release from the Manhattan US Attorney's office reads.

Manhattan US Attorney Preet Bharara said: "As alleged, Robert Faiella and Charlie Shrem schemed to sell over $1m in bitcoins to criminals bent on trafficking narcotics on the dark web drug site, Silk Road.

"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. We will aggressively pursue those who would co opt new forms of currency for illicit purposes."

Hiding behind their computer screens

DEA agent James J. Hunt accused the pair of "hiding behind their computers...knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way."

The Silk Road website was closed down by the FBI in early October, coinciding with the arrest of its alleged owner Ross Ulbricht, who is claimed to have used the online pseudonym The Dread Pirate Roberts.

Unsealed in Manhattan federal court, the Criminal Complaint states that Faiella ran "an underground bitcoin exchange on the Silk Road website," from December 2011 to October 2013.

The complaint continues: "Operating under the username 'BTCKing,' Faiella sold bitcoins...to users seeking to buy illegal drugs on the site. Upon receiving orders for bitcoins from Silk Road users, he filled the orders through a company based in New York, New York (the 'Company')."

It is alleged that this company was "designed to enable customers to exchange cash for bitcoins anonymously".

Shrem is described as "the Chief Executive Officer of the Company, and from about August 2011 until about July 2013, when the Company ceased operating, he was also its Compliance Officer, in charge of ensuring the Company's compliance with federal and other anti-money laundering laws."

Shrem is said to have personally bought drugs on the Silk Road website and "was fully aware that Silk Road was a drug-trafficking website, and through his communications with Faiella, Shrem also knew that Faiella was operating a bitcoin exchange service for Silk Road users," the complaint states.