bitcoin handcuffs

Eight months after his arrest at JFK International Airport on charges including conspiracy to commit money laundering, early bitcoin evangelist, BitInstant.com founder, and former Bitcoin Foundation Vice Chairman Charlie Shrem is set to accept a plea deal. His attorneys tell Reuters that the plea will be entered this Thursday, September 4th. Shrem’s trial is scheduled to begin on September 22nd.

Under the deal, Shrem will plead to a lesser charge of aiding and abetting an unlicensed money transmission, and see all other charges related to money laundering and breach of the bank secrecy dropped. In the process, Shrem will reduce his maximum sentence from 25 years in prison to just five years, although it remains unknown what terms his lawyers have secured under the deal and how the judge will ultimately hand down sentencing.

Shrem’s arrest and indictment trace back to the Silk Road online marketplace, where he allegedly participated in a scheme to sell bitcoin to known criminals, such as drug dealers. Shrem didn’t deal with these criminals directly, instead providing bitcoin to his co-defendant, Robert Faiella, who operated a underground bitcoin exchange called BTCKing (alternatively BTC-KinG). Faiella is accused of then selling these bitcoin to Silk Road users. There’s no word on whether Faiella will pursue his own plea deal or whether Shrem’s deal requires that he testify against Faiella.

Given his one-time standing in the bitcoin community, it’s possible that Shrem provided authorities with other valuable information on the virtual currency ecosystem. He was known to be a friend and advisor to former Mt. Gox CEO Mark Karpeles. Between this and Shrem’s likely knowledge of the inner-workings of the Silk Road community, if not its accused kingpin, 30-year-old Ross Ulbricht aka Dread Pirate Roberts, it’s likely that he would have information that law enforcement and federal prosecutors would find valuable. Ulbricht’s trial is due to begin on November 3rd.

Up until his arrest, Shrem had been considered an icon in the bitcoin ecosystem. In addition to his seat on the board of the Bitcoin Foundation, he attracted investment for his BitInstant startup from the Winklevoss brothers, who were among earliest and most zealous high-profile believers in bitcoin.

Despite initially being placed under house arrest, Shrem saw the terms of his release on bail eased and has been able to remain active in the bitcoin community. He has been a featured speaker at several conferences and industry events, and has also worked as a consultant to other virtual currency businesses. Shrem has remained an active participant in the r/Bitcoin subreddit, including over this weekend following the news of his plea deal.

In some ways, Shrem is a victim of naivety and of being early to a sector that was unregulated and for which the rules were unknown. Many early bitcoin entrepreneurs wrongly believed that their businesses weren’t subject to money transmission laws, and behaved as such. But by being a high profile and highly vocal proponent of bitcoin, Shrem drew attention to himself. He also flaunted his bitcoin wealth by purchasing a Manhattan bar called EVR (“ever”) and had a habit of saying ill-advised things, such as telling one journalist, “I won’t hire you unless I drink with you or smoke weed with you—that’s a 100 percent fact.” In other words, this is in many ways a mess of his own making.

It will be up to the judge during Thursday’s plea hearing to determine final sentencing. Shrem has asked the bitcoin community for support in writing letters to the judge prior to his sentencing. Given that he is one of the earliest and most high-profile arrests in this controversial sector, the reality is that he may be made an example of. This could include Shrem spending time in prison, but it also could result in restrictions on his ability to work in regulated financial sectors, potentially limiting his future involvement in bitcoin. We should know more by the end of the week.

In the meantime, this development brings to a close another of the high profile fiascos that plagued bitcoin earlier this year, at a time when the virtual currency was seeking legitimacy in the eyes of the general public and regulators alike.