Charlie Shrem was an early apostle of cryptocurrency, earning millions of dollars trading bitcoin and treated like a rock star worldwide, with fans at conferences snapping photos of him and pushing business cards at him. But the one-time chief executive and compliance officer of BitInstant went to prison in 2015 for a drug scheme involving the bitcoin exchange he co-founded and an online black market, making Shrem one of the first in the U.S. to get jail time for crimes connected to crypto.

Today, the 33-year-old says he is mining his experience and urging the latest generation of crypto companies to erect guardrails against corporate misconduct.

“There’s a whole bunch of people out there wrestling with the crypto compliance beast, trying to figure it all out with their lawyers," said Shrem, who is now a general partner at venture-capital firm Druid Ventures, advising crypto startups and projects on strategy and growth. “That’s where I come in, helping them get their ducks in a row."

And a chastened crypto-advocate is precisely what the Justice Department wanted, according to Alexander J. Wilson, a former prosecutor in the Southern District of New York who oversaw Shrem’s sentencing in 2014 and now a partner at law firm Jones Day. The Justice Department viewed the purpose of enforcement and criminal prosecutions such as Shrem’s as a way to push the crypto industry into a regulated system with money-laundering and sanctions-compliance programs, Wilson said, instead of into a gray area worked by criminals and terrorists.

Shrem’s lawyer in the case, Marc Agnifilo of Brafman & Associates, didn’t respond to a request for comment. A spokesman for the U.S. attorney’s office of the Southern District of New York declined to comment.

The road to crime

In the early days of bitcoin, said Shrem, the blockchain technology underlying virtual currencies attracted him. But it was the online community surrounding the nascent sector that drew him in. “I understood what the promise of what bitcoin could actually do is very far-fetched, but I enjoyed being a part of something," he wrote in an email.

While still in college, Shrem and a business partner started crypto payment company BitInstant in 2011 with $10,000 from Shrem’s mother. The firm catered to the demand at the time for faster bitcoin transactions, and Shrem quickly became one of the first bitcoin millionaires. At one point, BitInstant was spoken of in the same breath as Coinbase, and the company landed funding from Winklevoss Capital Management.

Then in 2013, the Treasury Department’s Financial Crimes Enforcement Network said digital assets and exchanges would have to begin abiding by the same money-laundering rules as conventional money-order providers.

Shrem said his company was mainly relying on the compliance programs at the crypto exchanges it partnered with to ensure its transactions were safe. The company was also taking photo identifications from those trading on the platform, maintaining data on customers and had also consulted lawyers on the protocols, he said.

Nobody was quite sure what compliance meant, he said. “We were taking IDs and did the compliance we thought was right."

In January 2014, Shrem—who was scheduled as a starring attraction at the annual bitcoin bash in Miami—instead was arrested at John F. Kennedy International Airport in New York and charged with laundering illicit funds from the dark-web black market Silk Road. An underground bitcoin exchanger, Robert Faiella, was also apprehended.

Shrem faced three counts of charges related to conspiracy to launder money, operating an unlicensed money-transmitting business and a willful failure to file a suspicious activity report. In September 2014, he pleaded guilty to one count of aiding and abetting the operation of an unlicensed money-transmitting business that was used on Silk Road. He was sentenced to two years, but served a little over one in a minimum-security facility in Lewisburg, Pa.

Changed landscape

Since Shrem’s arrest, some in the crypto sector have sought to establish strong compliance programs as the industry evolves from a fringe pursuit to mass adoption. But regulators remain skeptical of some of those efforts.

Timothy Howard, a former U.S. prosecutor in the Southern District of New York who supervised the unit that prosecuted Shrem, called the action a landmark case in early crypto enforcement that established the precedent of treating crypto like money. Prosecutors used tools typically employed to pursue financial institutions to go after companies and individuals in the digital currency space, for crimes such as money-laundering and failing to file suspicious activity reports, he added.

Since then, the Justice Department has increased its efforts to police crypto, training prosecutors and devoting resources to trace transactions as cybercrime—and awareness of it—has proliferated, said Howard, who left the U.S. attorney’s office about a year ago and is now a partner at law firm Freshfields Bruckhaus Deringer advising companies on cybersecurity and white-collar crime investigations.

After his prison term, Shrem said, he didn’t expect to be involved in crypto again, but his time on the inside forced him to reconsider his role in the digital-assets industry and to advocate for guardrails.

Shrem says he is proud of the work he did to encourage Byte Federal, a maker and operator of bitcoin ATMs, to get a money-transmitter license in Florida to ensure its growth.

Lennart Lopin, co-founder of Byte Federal, said he doesn’t remember if Shrem, who is a minority shareholder in the startup, gave direct regulatory advice. Lopin met Shrem at a crypto meetup in Sarasota, Fla., shortly after Shrem moved there. Lopin did say Shrem’s personal story and imprisonment motivated Byte Federal to reach out to regulators early and get the necessary licenses.

“His arrest was one of the moments where everybody started to think that we live in an environment of rules and laws," Lopin said.

In addition to Shrem’s work at Druid Ventures, he hosts a podcast about crypto investing, and is producing movies, including a romance called “Ask Me to Dance," available to stream on digital platforms. He also started writing his autobiography after he was released from prison. It’s about 180 pages of “heavily unedited work," he said, adding, “There is so much I want to say."

“I was so not a compliance person, and this is why I ended up where I fell," Shrem said, comparing the lack of compliance in crypto to scuba-diving with no gear. If his misadventure has taught him anything, it was this: “Even if you guys are small, you don’t want to be on the wrong side of things."