Two Bitcoin exchange operators have been arrested in the US.
The Department of Justice said Robert Faiella, known as BTCKing, and Charlie Shrem from BitInstant.com have both been charged with money laundering.
The authorities said the two operators engaged in a scheme to sell more than $1 million in Bitcoins to users of online drug marketplace the Silk Road.
Silk Road site was shut down last year and its alleged owner was arrested.
Charlie Shrem, 24, was arrested on Sunday at New York’s JFK airport. He was expected to appear in court on Monday, prosecutors said.
Robert Faiella, 52, was arrested on Monday at his home in Cape Coral, Florida.
Bitcoin exchanges are services that allow users to trade bitcoins for traditional currencies.
Charlie Shrem is accused of allowing Robert Faiella to use BitInstant to purchase large quantities of Bitcoins to sell on to Silk Road users who wanted to anonymously buy drugs.
The authorities said Charlie Shrem was aware that the Bitcoins were being used for such purchases, and therefore he was in violation of the Bank Secrecy Act.
The Act requires financial institutions in the US to alert authorities to any suspicious activity that may suggest money laundering is taking place.
Charlie Shrem is a founding member and the current vice chairman of the Bitcoin Foundation, a trade group set up to promote Bitcoin as an alternative currency.
Last year, Charlie Shrem set up a bar in New York that accepted Bitcoins.
BitInstant was one of the largest Bitcoin exchanges on the internet.
However, the service has been inaccessible for some time, explained Mike Hearn, another board member at the Bitcoin Foundation.
BitInstant’s investors include Tyler and Cameron Winklevoss – the twins who previously sued Mark Zuckerberg claiming he had stolen their idea for Facebook.