January 21, 2015 / 12:05 AM / 5 years ago

U.S. bitcoin exchanger who sold on Silk Road gets four years in prison

NEW YORK, Jan 20 (Reuters) - A Florida plumber who operated an underground bitcoin exchange selling the digital currency to users of the black market website Silk Road was sentenced to four years in prison on Tuesday.

Robert Faiella, 55, was sentenced by U.S. District Judge Jed Rakoff in Manhattan after pleading guilty to operating an unlicensed money transmitting business.

His sentence came a year after prosecutors unveiled charges against Faiella and his co-defendant, prominent bitcoin evangelist Charlie Shrem.

His sentencing came as trial continued for Ross Ulbricht, the alleged operator of Silk Road, a website where drugs and other illicit goods could be bought secretly with bitcoin.

Rakoff in December sentenced Shrem, the former vice chairman at the trade group Bitcoin Foundation, to two years in prison for aiding and abetting an unlicensed money transmitting business.

But Rakoff said Faiella, who must with Shrem also forfeit $950,000, deserved a harsher sentence, citing in part a prior conviction for a tax offense.

“He knew from his own criminal history the nature of the risk he was taking, and he knowingly assumed that risk,” Rakoff said.

Prosecutors say from December 2011 to October 2013, Faiella sold bitcoin for cash to users of Silk Road, a website that by the time authorities closed it had $200 million in drug sales.

Operating under the name BTCKing, Faiella would fill user orders for bitcoins through Shrem’s exchange, BitInstant, ultimately trading in over $1 million in cash, prosecutors said.

Lawyers for Faiella, a licensed plumber, said his crimes were motivated by a desperate financial situation amid job and medical problems.

“At the time of the offense, I saw no other way,” Faiella said in court Tuesday. “That still doesn’t change that I broke the law.”

Ulbricht, 30, faces seven counts including narcotics trafficking conspiracy. Joshua Dratel, his lawyer, has acknowledged he created the website but says his client became the “fall guy” for its true operators.

He has also pointed to other people authorities investigated as being behind Silk Road, including Mark Karpeles, the former chief of the defunct bitcoin exchange Mt. Gox.

Karpeles denies involvement with Silk Road. A federal judge on Tuesday struck some but not all of a U.S. Department of Homeland Security agent’s testimony from Thursday about the Karpeles investigation.

The agent, Jared Der-Yeghiayan, testified again Tuesday and will resume Wednesday.

The case is U.S. v. Faiella, U.S. District Court, Southern District of New York, No. 14-cr-00243. (Reporting by Nate Raymond in New York; Editing by Cynthia Osterman)

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