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EXCLUSIVE: Charlie Shrem Speaks Out About Mt. Gox, His Arrest and the Bitcoin Bromance

(@emilyspaven) | Published on February 27, 2014 at 19:09 BST

"I've known Mark Karpeles for a very long time. Mark is a very sweet guy. Very non-confrontational, but has he made bad business decisions? Yes. Has he failed to do everything he should have? Yes."

So says Charlie Shrem, the troubled bitcoin entrepreneur, speaking to me from his parents' house in New York, where he's currently under house arrest.

He tells me he classes Karpeles, CEO of the disastrous bitcoin exchange Mt. Gox, as a good friend, but disagrees with a hell of a lot of the decisions the Frenchman has made.

Mt. Gox has been dying a slow and painful death for some months, but now appears to be taking its final breaths after documents came to light suggesting insolvency and the loss of more than 744,400 bitcoins (around $426m).

Shrem believes a number of factors are responsible for the exchange's current issues, from a lack of PR presence to poor management structure, but first and foremost is the inadequacy of the technology Mt. Gox is built upon. He explained:

"The whole exchange is built on layer upon layer of patchy scrap work – the whole thing is flawed because of the way it was built."

As for the company's management structure, Shrem said Karpeles may call himself CEO, but he "doesn't make any of the business decisions". Gonzague Gay-Bouchery "pretty much runs the company", despite his official job title as marketing director.

The company has also hired a lot of developers, but any developer code that's created has to be looked over and checked by Karpeles, creating a bottleneck that has severely hampered progress.

Shrem believes the company should have, long ago, hired an agency to handle its PR, but it didn't, because Karpeles didn't want anyone to know Mt. Gox's inner workings (read: didn't want anyone to know what a dire mess it was in).

Mt. Gox bitcoin protest Mark Karpeles

He acknowledges that Karpeles and Mt. Gox have done a massive disservice to bitcoin, but said, in a strange way, they've also done everyone a big favour – Gox's competitors will learn from the mistakes that have been made and will progress with more robust and technologically sound models.

The 24-year-old admitted he has some bitcoins in Mt. Gox and didn't sound particularly hopeful that he would ever see them again.

However, he's trying his best to be a good friend to Karpeles at a time when he's (understandably) being hounded from all angles.

And Shrem certainly knows all about that, having been headline fodder for a good few weeks earlier in the year, following his arrest on money laundering charges.

Shrem's arrest

"I didn't know what was going on. One minute I was getting off my flight, the next I was being arrested.”

"The way they did it – arresting me at the airport in front of a ton of people – the whole thing was set up to make me look like a criminal," he said.

Shrem believes his arrest was carefully planned by the federal government to damage the public's perception of bitcoin. He thinks the media hasn't helped matters, either, by "making assumptions" and publishing articles "without knowing the full story".

He is alleged to have been involved in a scheme to “sell and launder over $1m in bitcoins” through the now defunct online black market Silk Road.

A document published by the Manhattan US Attorney alleged Shrem knew 52-year-old Florida native Robert M Faiella was “operating a bitcoin exchange service for Silk Road users” and that the authorities have email correspondence to prove this.

The entrepreneur said the emails have been taken out of context and that the government and media seem to think his company, BitInstant, where he was CEO until recently, was selling bitcoins to Faiella. He stressed:

"That's not how the business worked – we didn't actually sell any bitcoins."

BitInstant was designed to enable people to quickly transfer money to their bitcoin exchange accounts. The way Shrem sees it, Faiella allegedly advertised his services on Silk Road, and would send his customers on to BitInstant.

These customers would conduct the transactions themselves, then send the money to their own Mt. Gox accounts. Once on this site, they would buy bitcoins, transfer the bitcoin to their Silk Road account and buy illicit goods.

"Now how many times am I removed from that already?" he added.

The case

Having recently resigned from board of the Bitcoin Foundation, Shrem said he is now spending the vast majority of his time focusing on his case and "trying to hang on to my sanity".

He's working with his lawyer, Marc Agnifilo of Brafman & Associates, to meticulously comb through the 30-something-page complaint against him and try to work out what exactly the charges against him are.

Bitcoin is a brotherhood. That’s what keeps me involved, you’re changing the world and you know that other people are doing it with you.

Agnifilo defended former managing director of the International Monetary Fund Dominique Strauss-Kahn after he was arrested in Manhattan on charges of sexual assault.

Agnifilo's colleague Benjamin Brafman famously worked with O.J Simpson's defence lawyer Johnnie Cochran as co-defendant of Sean Combs (Puff Daddy) when he faced illegal weapons and bribery charges.

He was also hired to represent NFL star Plaxico Burress who was indicted on two counts of criminal possession of a weapon and one count of reckless endangerment.

Shrem said he's currently not allowed to go anywhere – not even his lawyer's office – without first getting permission from the court, 48 hours in advance. "I can't go anywhere. It sucks."

Staying sane

Shrem told me he's maintaining his sanity by spending his time indoors speaking to his friends and picking up new skills. He explained:

"My friends are here a lot and I'm getting a lot of free stuff. People are sending me a lot of alcohol gifts, which is good. I'm trying to make the best of it – I'm learning some new languages, I'm working out a lot every day and watching Netflix – a lot. Just trying to keeping my spirits up,"

He hasn't completely put the brakes on his business activities, though. He said he's working on a "secret project" that involves bitcoin.

When pushed for more details, all he would reveal, rather cryptically, is: "It’s something that I've wanted to do for ages, but haven't had the time. It requires a bunch of licensing and bringing it over from the EU before I can do it."

He's trying his best to spread the bitcoin entrepreneurial spirit by giving away the many bitcoin domain names he owns to people looking to start projects within the ecosystem.

"I'm just trying to encourage entrepreneurship and innovation in the space. My brain is here for the picking and a lot of people are calling me to see what I think about their business and I'm brutally honest with them," Shrem explained, adding:

"Just bring me a six-pack and I'm yours for an hour."

BitInstant relaunch

Shrem said that, at the time of his arrest, BitInstant was about to close a large investment round. He stepped down from the company so this could continue.

BitInstant plans to relaunch with a service enabling people to buy bitcoin with cash in stores in more than five countries, paying less than 1% in charges.

"Unlike the other American bitcoin companies, we actually have all the licences and the compliance that we need to have, which makes things a lot easier," he said.

The service BitInstant has planned sounds a lot like that recently launched in the UK by ZipZap – customers order bitcoins online, then head to their nearest ZipZap payment location (there are over 28,000 across the UK), pay cash and see the bitcoins appear in their wallets.

"We worked with ZipZap for a long time in the US. I was the one that introduced Alan Safahi [ZipZap's CEO] to bitcoin in the first place and we became really good friends. He's a big supporter of us," said Shrem.

He's made quite a few "good friends" over his past few years working in the bitcoin ecosystem, in fact, he jokes that he knows "everyone in this frickin' space".

The bitcoin brotherhood

"Bitcoin is a brotherhood. That's the best part about it," said Shrem.

"It's such a beautiful thing to be a part of. That’s what keeps me involved in bitcoin. You know that you're changing the world and you know that other people are involved in doing it with you."

He challenges me to find a more open and accepting community than bitcoin and likens its close-knit nature to that of his Jewish community.

"We are the most non-discriminatory group of people the world has ever seen. We're ripping the guts out of the whole financial infrastructure, so let's break down some other barriers too."

Image Credit: Mediabistro / Flickr

BitInstantCharlie ShremCrimeMt. GoxSilk Road

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