Charlie Shrem, once best known for his work with Bitcoin but wound up going to prison, is being sued by the Winklevoss brothers over a Bitcoin dispute, The New York Times reports.
Cameron and Tyler Winklevoss believe Shrem has improperly used Bitcoin funds that he was supposed to pay out to the twins for the past six years, a lawsuit revealed. The twins are after about $32 million of Bitcoins. The two twins were able to take settlement money that came from Mark Zuckerberg and invest it well, according to The New York Times.
“Either Shrem has been incredibly lucky and successful since leaving prison, or — more likely — he ‘acquired’ his six properties, two Maseratis, two powerboats and other holdings with the appreciated value of the 5,000 Bitcoin,” the lawsuit alleges in reference to the money the twins believe Shrem owes them.
The Winklevoss twins operated a few different businesses related to Bitcoin and the cyber-currency sector, and they can thank Shrem for initially getting them involved six years ago, according to The New York Times. While Shrem’s influence led the twins to make great investments, it set off the impetus for the current lawsuit. The twins said that they handed over $750,000 to Shrem for the purposes of having him help them buy Bitcoins, but they say he never gave them back all of the money. Court documents show that Shrem already had some accounts of his frozen by a judge from a prior trial.
The problems for Shrem go beyond the money the lawsuit alleges he owes. Court records indicate that Shrem may owe nearly $1 million in restitution that he has yet to pay the government. For pleading guilty to crimes having to do with Bitcoin in 2014, Shrem was ordered to pay restitution. He said his legal situation emptied his bank accounts, but he’s recently made luxurious and expensive purchases, Finance Magnates reports.
Brian Klein represents Shrem and doesn’t think there’s any merit to the idea that his client owed the twins any money. “The lawsuit erroneously alleges that about six years ago Charlie essentially misappropriated thousands of Bitcoins,” he said. “Nothing could be further from the truth. Charlie plans to vigorously defend himself and quickly clear his name.”
A private investigator that the twins hired believes that the twins are owed 5,000 bitcoins, which is why they believe they’re owed almost $32 million.
Shrem found himself in prison after the takedown of the notorious dark web black market online shopping place called Silk Road. Bitcoin and other cryptocurrencies can be used for illicit activity because the money is untraceable. Shrem got in trouble by running a Bitcoin exchange that helped with some of the transactions for users of the now-defunct Silk Road. Specifically, he was brought up on charges of unlicensed money transmission and failing to report suspicious banking activities, according to Finance Magnates. The twins even were involved in an investment in the company, BitInstant, before it dissolved and before they stopped communicating with Shrem following his arrest.
According to the lawsuit, Shrem spent the past year spending a lot of money on exotic items like boats and sports cars. He even bought some properties, like one valued at $2 million. About a year ago though, in an interview with WNYC, Shrem told a tale that painted a very different picture of himself, of a man in a challenging and humbling position.
Shrem said that he had to work as a dishwasher as it was the only work he could find and that he had to make payments resulting from his legal situation, The New York Times reports. He said that he does still have a few bitcoins but that he does not have control over them. “I can’t speculate with my rent.” The discrepancy in accounts led the twins to file a lawsuit, which they did after learning of the expensive and excessive purchases made by Shrem.
The Jewish Voice has reported on Shrem before. He’s a yeshiva from Brooklyn. On an episode of “Death, Sex & Money” on WNYC, he talked about taking a chance on bitcoin and his life changing forever.
On the show, Shrem expanded upon his youth in Brooklyn, New York, in a tight religious community. He learned from a young age the value of a dollar from his parents, who “didn’t do anything to excess.” However, he became looser once he started to make a lot of money of his own.
During high school, Shrem ran a lucrative computer-repair service with his friends. He co-founded the e-commerce website BitInstant in college, which assisted people in the conversion of dollars to bitcoins.
He told the podcast host Anna Sale, “I was, like, 22 years old. I had half a million dollars sitting in the bank. I had no expenses. Life was great.”
According to a CNBC report, “At one point, according to a report on Bitcoin.com, BitInstant accounted for almost 30 percent of all bitcoin transactions and even received investment capital from investors like Roger Ver. Then a mistake cost Shrem nearly everything and landed him in prison. A BitInstant user began reselling bitcoin on Silk Road, an underground marketplace known for illegal activity, Shrem explains to Sale.”
Shrem said, “This guy was a customer of ours. He bought bitcoin and then would resell [them to people who] would then go buy drugs and stuff like that. I knew about it. I didn’t really care and I was a young kid. I didn’t care enough to stop it because I was making money.”
He then changed his mind, and sent the user an email that said, “I know you’re on Silk Road, I know you’re reselling. You better stop, you know. You better calm down.”
Unfortunately, Shrem didn’t alert the authorities, and even though he had since shut down BitInstant, he was placed under arrest for operating an unlicensed money-transmitting business and money laundering.
Shrem said that good did come out of all the isolation, which gave him time to think and regain balance. He said, “In prison, you have to forget about the world on the outside. You have no internet, no communications and you’re cut off from the whole world. Everything is given to you.
You have shelter, you have food, a shower, water. You don’t need to spend a dime. You don’t have to worry about bills.”
By: Jeanne Morash
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