Federal prosecutors in Manhattan Monday charged two bitcoin entrepreneurs with using the virtual currency to launder $1 million for drug trafficking on the underground website Silk Road.

Robert Faiella, 52, who used the Internet name "BTCKing" to run a digital-money exchange, was arrested at his Florida home. Charlie Shrem, 24, of Manhattan, an overnight bitcoin celebrity who moved out of his parents' basement last year and claimed to be worth $6 million, was arrested at Kennedy Airport.

Shrem, profiled by CNN and the New York Observer, was the founder and chief executive of BitInstant, a ballyhooed startup catering to the trading needs of bitcoin users, vice chairman of a foundation promoting bitcoin use, and co-owner of "bitcoin bar" EVR in Manhattan.

Bitcoin is a form of digital cash that allows users to bypass banks and credit card companies. But when officials shut down Silk Road last year, they described it as a black market drug bazaar that used hard-to-trace bitcoins to cloak $1 billion in illegal trades.

According to the charges, Faiella ran his bitcoin exchange on the Silk Road site to cater to the needs of its customers. Shrem's company helped Faiella make anonymous cash payments to acquire the bitcoins that he resold on Silk Road, gave him discounts and failed to report his dealings, the papers said.

Both men knew they were facilitating anonymous drug dealing, officials said.

"Truly innovative business models don't need to resort to old-fashioned lawbreaking," said U.S. Attorney Preet Bharara. "When bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act."

Sign up for The Classroom newsletter. Education on Long Island is changing. Find out how. By clicking Sign up, you agree to our privacy policy.

Faiella faces up to 25 years in prison and Shrem up to 30 years on conspiracy and money laundering charges. Prosecutors asked a magistrate to detain Shrem as a flight risk, based on comments he made in a 2012 YouTube interview about government hostility to alternative money systems like bitcoin.

"We have contingency plans," he said. "I have a plane ticket ready to take me to Singapore. There's another company already set up. And, you know, a lot of us core bitcoiners are ready to go to jail for bitcoin."

But Shrem's lawyer Keith Miller said the comments were taken out of context, and said BitInstant -- the source of much of Shrem's claimed wealth -- had not operated since last July. He argued that Shrem had strong ties to the Jewish community in Marine Park, where he grew up.

U.S. Magistrate Henry Pitman declined the government's request. He released Shrem on $1 million bond and, despite reports of a family "rift," ordered Shrem to move back in with his parents in Marine Park, under house arrest.

Faiella was detained in Florida.