Federal prosecutors have charged two men with scheming to sell more than $1 million in bitcoins for use on Silk Road, the online emporium that allowed people to buy and sell illegal drugs anonymously.

Robert M. Faiella, 52, of Cape Coral, Florida, operated an underground Bitcoin exchange on Silk Road from 2011 to 2013, according to a criminal complaint unsealed Monday in federal court in Manhattan. Charlie Shrem, 24, of New York City, was allegedly the CEO and chief compliance officer of a Bitcoin exchange company. Together, prosecutors said, the men conspired to launder more than $1 million worth of Bitcoin transactions that flowed over Silk Road, which was shut down in October after allegedly arranging more than $1 billion in sales of heroin and other illicit substances and services to hundreds of thousands of buyers. Faiella, who allegedly operated under the username BTCKing, was arrested Monday at his home, while Shrem was apprehended on Sunday at John F. Kennedy International Airport in New York.

Prosecutors said the men earned substantial profits by knowingly facilitating anonymous drug sales on Silk Road, which recognized bitcoins as the sole form of official payment. Prosecutors said Faiella used his BTCKing identity to operate a Bitcoin exchange on Silk Road. To fulfill orders, he relied on a New York-based Bitcoin exchange run by Shrem, according to court documents. The company, which Business Insider identified as BitInstant, allowed customers to exchange cash for bitcoins anonymously in exchange for a fee. Faiella allegedly fulfilled orders from Silk Road users with the assistance of Shrem's company, and then he passed along the bitcoins with a further markup.

According to court documents, Faiella advertised his services on Silk Road with promises such as "FOR THE FASTEST SERVICES place an order by getting one of our 'listings' below, include AMOUNT of Bitcoin you want .... Don't go far, our response is Very Fast." In August 2012, an undercover law enforcement agent posing as a Silk Road user placed an order with BTCKing. After depositing $500.11 into the designated account, the agent's Silk Road account was allegedly credited with $444 worth of bitcoins the same day. Two months later, the agent deposited $507.10 into a different bank account designated by BTCKing. Later that day, the agent's Silk Road account once again was credited with $444, prosecutors said.

Faiella allegedly relied on Shrem's company to allow customers to move money into exchange accounts anonymously. Customers deposited the money in person to the bank accounts of a third-party service. The company limited cash deposits to under $1,000 per customer per day to avoid disclosure requirements mandated under anti money laundering laws. As a money transmitter under federal statutes, the company was subject to anti money laundering laws that among other things required it to report substantial transactions or patterns of transactions suspected of facilitating criminal activity. Shrem allegedly never filed any such reports.

Shrem and Faiella eventually stopped working together after Shrem's company ceased accepting cash payments for bitcoins in late 2012. Faiella temporarily shut down his exchange on Silk Road, prosecutors said, but went on to resume the operation in April 2013. Shrem is listed as the vice chairman and acting CEO of BitInstant. According to Business Insider, the company is backed by the Winklevoss twins.

Each defendant is charged with one count of conspiracy to commit money laundering and one count of operating an unlicensed money transmitting business. Shrem is also charged with one count of willful failure to file a suspicious activity report. If convicted on all charges, they each face maximum sentences of more than 20 years in prison. Neither defendant has entered a plea or made a public comment on the charges. This post will be updated if that changes.