Bitcoin Billionaires

by Ben Mezrich

  He stood there, staring at the concrete walls, trying to focus, trying to think. But his mind was moving too fast; everything had suddenly become blurry.

  And then the officers and agents were back, all of them, and he was being carted down the hallways again. This time he wasn’t brought to a room, he was led outside, to a waiting caravan of black SUVs.

  “Where’s Courtney?” he said as he was shoved into the back of one of the oversize vehicles.

  “Don’t worry, you’ll see her when we get there.”

  And then the SUV was moving. Flashing sirens, buildings racing by on either side. Charlie didn’t know how long he was in the car before it came to a sudden stop, and he was then being led out through an underground entrance.

  “Welcome to the DEA booking center,” someone said, in his direction.

  And then, thank god, he saw Courtney again, jumping up from a wooden bench next to the main booking desk. But two officers quickly moved between them, keeping them apart.

  “Call my lawyer,” Charlie shouted, and Courtney nodded. Charlie was certain he needed a lawyer—and he was pretty sure he had a lawyer.

  When Courtney was gone, they sat him down at the desk and started peppering him with questions. One agent after another, asking him what BitInstant did, where the money came from, even how Bitcoin worked. It was like he was back at the conference in Amsterdam—except no stage, no mic, and now all the questions were coming from men wearing badges and guns. Charlie had seen enough TV to know you didn’t answer questions, no matter how innocent you thought you were. He just shook his head.

  When it became obvious that he would say nothing, the agents began the booking process. Fingerprints, photographs. They took his wallet, his belt, his shoelaces. His ring, imprinted with part of his Bitcoin private key. And the next thing he knew, he was being pushed into a real jail cell. Not a screening room or a cement holding cell, but a real jail, like with bars on the walls. There was a bunk bed next to a metal toilet right out in the open. Then he heard someone laughing from the bottom bunk.

  He wasn’t alone. There was someone in the cell with him.

  “You better wear your socks to sleep,” the other inmate said. “It gets cold. Real cold. You don’t want to get sick and die in here.”

  “Why are you in here?” Charlie responded, instantly regretting the question, because he had no idea if it was something you were allowed to ask in prison, if it was the sort of thing that got you killed.

  “My celly pissed the toilet seat in my crib so I jumped him. I guess they figured I needed some ‘me’ time.” When Charlie didn’t say anything, he laughed. “Don’t worry, little man, I’m cool. Just keep the seat clean when you go, and we’ll have no problems.”

  Charlie stood there—the bars behind him, the bunk bed and the inmate and the toilet ahead—and closed his eyes.

  * * *

  “Charlie, do you know anyone by the name of Bobby Faiella?”

  It was eight hours later, and Charlie was still in that jail cell. He was standing up close to the bars, and Courtney was on the other side, trying to keep it together—and mostly succeeding. She hadn’t been home yet, hadn’t showered or unpacked or changed her clothes, but she’d redone her makeup, combed her hair, and gotten some of the red out of her eyes. He knew she’d been crying most of the night—but then again, so had he, quiet as he could in the top bunk, until around 3:00 A.M., when they’d taken the other inmate out and left him in alone. Now it was the next morning, and he was no less confused than he had been when those handcuffs had first hit his wrists.

  “Bobby Faiella? Never heard of him. Who is he?”

  Courtney had reached Charlie’s lawyer. His lawyer had immediately conferred with the various agencies bringing the charges against Charlie. He was on his way to the holding center to bring Charlie up to speed, and then take him in front of the judge who would decide his bail situation. In the meantime, Courtney was trying to fill Charlie in on what she knew.

  Bobby Faiella. Charlie wracked his brain but couldn’t think of anyone he knew with that name. All night, aside from fighting his emotions, he’d been trying to figure out what the IRS, DEA, and FBI had on him, what he could possibly be facing. And he’d come up with almost nothing. If he had to guess, he thought maybe it had something to do with licensing. But he’d closed BitInstant as soon as the lawyers had told him to. Was this the type of government conspiracy that Roger Ver had been talking about all along? Was Charlie getting Rogered?

  “I really can’t think of anyone named Bobby.”

  “Online he called himself something like—B-T-C-King.”

  Charlie’s mouth opened—then closed.

  “Shit,” he said finally.

  And in that moment, suddenly he knew. He fucking knew.

  “It’s Silk Road.”

  Silk Road had been taken down four months ago, but that didn’t mean the government was finished with it. They would be going after all the leads, all the intelligence, that the bust had produced, for years to come. And now it appeared that Charlie was suddenly, somehow, one of those leads.

  BTCKing. Charlie’s mind raced backward, trying to figure out what, exactly, he’d done. What stupid things he’d maybe written in emails, or said to friends. Could you really be arrested for emails? Could you go to jail for jokes you made to friends? What had Charlie actually done? Helped someone to buy bitcoin? Could that be a crime?

  “What are the charges?”

  “One count of conspiracy to commit money laundering. One count of failure to file a suspicious activity report. And one count of operating an unlicensed money transmitter.”

  Charlie blinked, hard. Failure to file a suspicious activity report—okay, he could see that. He’d known about BTCKing moving close to a million dollars in bitcoin, buying and presumably reselling, and despite suspecting that those coins might be going to Silk Road, he had never filed a suspicious activity report with the Financial Crimes Enforcement Network, a bureau of the U.S. Treasury. Charlie was BitInstant’s compliance officer, which meant he was responsible for creating and filing a SAR. If he’d only listened to the twins—hired a compliance officer, not tried to do everything—but it was obviously way too late for thoughts like that.

  But money laundering? What did that even mean? How had he laundered anybody’s money? The only money he could think of that he had laundered was a few dollars that he had from time to time forgotten to take out of his pants before they went through the wash. And he didn’t think he had ever run an unlicensed money transmitter—had he?

  “Charlie,” Courtney said, quietly. “Your lawyer says you could be facing twenty-five years.”

  Charlie pressed his face against the bars. This couldn’t be happening. The numbers hit him hard.

  “Twenty-five years, Charlie,” she repeated. “What are we going to do?”

  We. Hearing her say that made him feel good, even standing behind those bars. Because it meant it was both of them now. If Charlie went to prison—could he really go to prison?—for selling bitcoin?—Courtney was still going to be there for him.

  “I don’t know,” he finally said. They were maybe the most honest words he’d ever spoken.

  * * *

  Two hours later, Charlie finally got his moment in front of a judge. Sitting next to his lawyer on a wooden bench, his wrists still sore and aching from the handcuffs that had just been removed, and staring at his shoes, which were still missing the laces, he listened as the prosecutor made his case.

  The government argued that he shouldn’t be let out on bail—because they believed he was a flight risk with means. In fact, they even played a video for the judge from an online interview in which Charlie told some podcaster with a microphone and a camera that he had a house in Singapore. The prosecutor further added that Charlie had a private jet and millions of dollars in bitcoin, a fortune hidden all over the world. Like Bloomberg had reported, he was a Bitcoin multimillionaire, a Bitcoin King.

  It was a joke, o
f course. He didn’t have a house in Singapore. He didn’t have a private jet. He had some money—but all of it was now going to go to his lawyer. He was a face of Bitcoin, an OG—but unlike the Winklevoss twins, or Roger Ver, or Erik Voorhees, he hadn’t been loading up on bitcoin personally. He’d been so busy traveling the world and telling everyone about Bitcoin, he hadn’t stopped to accumulate hardly any, he’d never really had the means to begin. In fact, after legal fees, his net worth wasn’t going to be in the seven figures, it wasn’t going to be in the six figures—he’d be lucky if it was in the five.

  Hell, very soon he’d probably be left with close to nothing.

  In the end, the prosecutor did not get everything he wanted. Charlie’s lawyer argued for house arrest and an ankle bracelet—and the judge ended up granting it.

  But before the judge would allow him out of the courtroom—out of jail—with that ankle bracelet, Charlie had to have a place to go, under the care of a responsible guardian. His apartment over EVR—a nightclub—was off-limits, and he couldn’t be on his own, or alone with Courtney without a viable means of support. Which meant there was only one place he could go.

  And Charlie sagged onto the bench.

  * * *

  When his lawyer came back into the courtroom, Charlie was still on that bench. His lawyer didn’t wait to give him the news.

  “So I spoke to your parents.”

  Although Charlie hadn’t spoken to either his mom or dad since he’d left home to be with Courtney, they’d followed the news—they didn’t need Charlie’s lawyer to inform them of what had happened. Charlie’s arrest was front-page material. It was everywhere, front and center. The New York Times. The New York Post. CNBC. Even the BBC.

  The papers were calling it the first Bitcoin arrest. Although Silk Road had functioned on a Bitcoin economy, Dread Pirate Roberts wasn’t arrested because his site dealt in Bitcoin; the Bitcoin was beside the point. He’d have faced the same charges if it had accepted any currency. Charlie Shrem, boy genius, one of the faces of the new digital economy, was now the first person to be arrested expressly for dealing in Bitcoin. The press was having a field day.

  “But there’s a problem,” Charlie’s lawyer said.

  Of course there was a problem, Charlie thought to himself. I’ve been arrested!

  “Here’s the situation. The judge is offering you bail at one million dollars. To meet that, your parents will have to put up their house as collateral. After which, you would be released—to live with them, under house arrest.”

  An unpleasant situation all around, considering their fractured relationship and the fact that his parents had made it clear that he would need to apologize and live under their rules while in their house—but what could he do.

  “You don’t have a choice.”

  And Charlie realized—his lawyer was right. He couldn’t stay in jail; it would take months, maybe a year before he went to trial. He needed to get out of there, to try and figure out how to beat this thing, to change the narrative. The first person arrested for Bitcoin. What his parents were asking was horribly unfair.

  But he had no choice.

  He would tell Courtney the truth, and lie to his parents. Courtney could go back to Pennsylvania, to her own mother’s house, wait it out until the trial. Charlie could fake the religion: he’d done it before for years before he even realized he was faking.

  “It’s the right thing to do,” the lawyer was saying. “We’ll get you out of here, and then we can work on building your defense. We’ll beat this.”

  But Charlie was barely listening. Because as bad as temporarily losing Courtney was going to be, as bad as dealing with his parents and pretending to believe in the sky people again was going to feel—the worst part was: he was heading back to that basement.

  And this time, he’d be wearing an ankle bracelet—courtesy of Uncle Sam—that would go off like a fire alarm if he so much as stuck a foot outside his front door.

  27

  ACROSS TOWN

  Less than thirty blocks away, Tyler Winklevoss sank into the black leather of a Cadillac Escalade SUV backseat, trying to shed the nervous energy pirouetting through his body. Through the window, he could see the nondescript entrance to their office building; the SUV was sitting right by the curb, engine running. There was a good hour before he and Cameron’s sworn testimony at the Virtual Currency Hearings was set to begin. The public hearing was being held by the New York Department of Financial Services, the regulator that had subpoenaed him, Cameron, and twenty-two other Bitcoin heavyweights. Given the midmorning traffic between the Flatiron and Tribeca, the trip would probably take thirty minutes. Enough time to calm himself and mentally prepare.

  Out on the sidewalk, Cameron was stretching his legs before joining Tyler in the back of the car. Although they weren’t in rowing singlets and they were nowhere near water, Tyler felt the same sensations—anticipation mixed with a little fear—that he’d usually felt before a big rowing event. Maybe not quite the level of the Olympics, but something close, perhaps Henley or the Head of the Charles.

  When Cameron finally entered the SUV and sat in the bucket seat across from him, Tyler gave his brother the same look he’d given Cameron a thousand times before, oars above the water.

  “You ready?”

  “Pretty sure. It’s hard to be certain when you don’t know if you’re heading toward a gunfight or a square dance.”

  “No doubt it’s going to be a little bit of both.”

  After getting over their initial dismay at being subpoenaed by the government for the first time in their lives—and finding out about it from the press—Tyler and his brother had quickly discovered that the move had not been meant as an accusation of wrongdoing or criminal activities; in fact, the request for documentation and later for them to testify in front of the superintendent was a real opportunity; the twins had been chosen as representatives of the new virtual economy to help the Department of Financial Services understand Bitcoin and virtual currency, and help shape what sort of regulations were necessary, now that Bitcoin was becoming an unavoidable part of New York City’s financial landscape.

  In a way, the subpoena was actually an honor that had been bestowed on the twins. As Forbes magazine had headlined, EVERY IMPORTANT PERSON IN BITCOIN JUST GOT SUBPOENAED BY NEW YORK’S FINANCIAL REGULATOR. Among the people and companies subpoenaed were venture capitalists Marc Andreessen and Ben Horowitz, along with the founders of Coinbase, Bitpay, CoinLab, Coinsetter, Dwolla, Payward, ZipZap, Boost VC, and even Peter Theil’s Founders Fund—pretty much a who’s who of everyone who had made a major investment in or ran a major company in the Bitcoin space.

  At the same time, there was reason to believe that the event would be confrontational. Ben Lawsky, the head of the NYSDFS, the man who had signed the subpoenas, had been quoted as calling Bitcoin “a virtual Wild West for narco-traffickers and other criminals.” The point of the session was not just to gather information, but also to use that information to rein in the Bitcoin economy. In his statement, Lawsky continued: “We believe that—for a number of reasons—putting in place appropriate regulatory safeguards for virtual currencies will be beneficial to the long-term strength of the virtual currency industry.”

  On the one hand, it was exactly what the twins had been pushing for. That being said, regulation had to get it right. It had to be tough enough to snuff out the darker elements of Bitcoin, while at the same time not so draconian that it killed the innovation itself.

  As Tyler and his brother prepared for what would undoubtedly be an intense day—hunkered down at the headquarters at Winklevoss Capital writing their testimony and gaming potential questions and answers—they’d tried, and hopefully succeeded, to come up with what they believed to be the sort of healthy regulation that would make sense.

  The SUV fully loaded with Winklevii, the driver began to pull away from the curb when there was a loud knock on the window next to Tyler. He looked up and saw Beth standing next to the ca
r. She appeared out of breath, like she’d just sprinted down the stairs from their offices instead of taking the elevator. Tyler rolled down the window.

  “Charlie Shrem,” Beth managed to get out as she was catching her breath. “He was arrested last night at JFK. He was just arraigned.”

  Tyler’s stomach dropped. His first thought was he hoped it was for something minor—but then again, did they keep you overnight for smoking pot on an airplane?

  Beth told him the charges: money laundering, failing to file suspicious activity reports, operating an unlicensed money transmitter.

  Fuck. This wasn’t just Charlie. This was BitInstant. This was—

  “Silk Road,” Tyler said. “This has to be related to Silk Road. What the fuck did that kid do!?”

  The money laundering charge on first blush seemed insane, probably something tacked on, and the “unlicensed money transmitter” could be the sort of thing Charlie might have unwittingly stepped into by being a mostly absentee CEO—but the suspicious activity reports had to be related to someone using BitInstant to purchase bitcoin for illegal activity—and the most obvious possibility was buying drugs on Silk Road. Once Silk Road had been taken down, it was open season, more like a turkey shoot, on the people who had been using it for illicit purposes—and the feds had probably dedicated a whole unit to trying to track them down. If Charlie had been stupid enough to knowingly let someone use BitInstant for that purpose—he was going to go down.

  “We need to put out a statement,” Tyler said. “Right away.”

  Here they were, literally on their way to testify in front of Superintendent Lawsky and the New York regulators to urge them to regulate Bitcoin in a reasonable way, and the CEO of the Bitcoin company they had first invested in had just been arrested for exactly what the regulators feared most about this new virtual currency.

  Working with their outside counsel, Tyler Meade—a former prosecutor who had served as a legal adviser for the twins during the Facebook saga—they quickly put together what they needed to say: