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Bitcoins turn out to be another bad bet for the Winklevoss twins

“Truly innovative business models don’t need to resort to old-fashioned law-breaking,” Manhattan’s U.S. Attorney said in a statement. That’s precisely the point that storied investor-twins Cameron and Tyler Winklevoss were expected to make at hearings last week before banks and regulators.

The twins, best known for their decades-long ownership dispute with Facebook, had invested in the electronic currency Bitcoin and were hoping to convince the financial sector that Bitcoins are a perfectly legitimate form of currency -- not tokens used to pay for illegal drugs online or in connection with other cybercrime.

Unfortunately, the Winklevoss twins’ latest enterprise took an unfortunate hit just as they were preparing their arguments for the full acceptance of Bitcoins. Their largest Bitcoin investment -- $1.5 million -- was in a company called BitInstant, and the founder of BitInstant was arrested on Jan. 26 on charges of using Bitcoins to launder money for use on the black-market drug trafficking website known as the Silk Road.

Bay Area residents may recall that the alleged mastermind of the Silk Road, a man known on the web as “Dread Pirate Roberts,” was arrested in San Francisco’s Glen Park Branch Library in October and charged with offenses ranging from narcotics trafficking to attempted murder.

The 24-year-old founder of BitInstant is accused of taking $1 million in cash from a man called “the BTCKing” in exchange for Bitcoins he planned to use on the Silk Road. The BTCKing was arrested on Jan. 27.

Both men are facing a number of cybercrime charges, including conspiracy to launder money and operating an unlicensed money-transmitting business. The founder of BitInstant is also charged with willful failure to file a suspicious activity report as required by the anti-money laundering provisions of the Bank Secrecy Act. If BitInstant ‘s founder is convicted on all charges, he could face a maximum sentence of 30 years in federal prison.

“When Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act,” reads the rest of that statement from the U.S. Attorney in Manhattan. “We will aggressively pursue those who would co-opt new forms of currency for illicit purposes.”

So, the Winklevoss twins have made another awkward investment in an online phenomenon. They have not been accused of any crime.

Source: Upstart Business Journal, “Horrible timing on Winklevoss investment arrests for Silk Road money laundering,” Michael del Castillo, Jan. 27, 2014

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