CNN Money is reporting that Charlie Sherm, the chief executive office at the popular Bitcoin exchange BitInstant, was arrested on charges that he laundered money for the underground drug bazaar known as Silk Road.

According to U.S. attorneys, Sherm and his co-conspirator, Robert Faiella a.k.a. BTCKing, laundered over $1 million in bitcoins for Silk Road customers. Sherm has been charged with one count of operating an unlicensed money transmitting business, one count of money laundering conspiracy and one count willful failure to file suspicious activity report.

In the indictment, the government alleges that "Robert Faiella and Charlie Shrem schemed to sell over $1 million in Bitcoins to criminals bent on trafficking narcotics on the dark web drug site, Silk Road. Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act. We will aggressively pursue those who would coopt new forms of currency for illicit purposes."

Although Sherm was arrested at John F. Kennedy International Airport on Sunday, authorities refused to divulge whether he was in the process of leaving the country.

Sherm's BitInstant exchange -- which was down after Monday's announcement by federal law enforcement officials -- allows users to purchase bitcoins at over 700,000 locations across the globe.

It is funded, in part, by a $1.5 million investment by the Winklevoss twins, Cameron and Tyler, who famously sued Facebook founder Mark Zuckerberg for intellectual property theft.

[Image via AFP]