The Bitcoin Foundation—which has been attempting to burnish the crypto-currency’s image—found itself in the spotlight for the wrong reasons this week, as its vice chairman was arrested on money laundering charges. What can you learn from its response?

For months, the Bitcoin Foundation has worked to prove that the crypto-currency is better than its press—often successfully.

But with the arrest of one of its most high-profile board members this week, the nonprofit group faced a challenge that threatened its mission at a critical time. The board member resigned in the end. Here are the steps that led to that decision:

About the arrest: On Monday, federal authorities arrested Charlie Shrem, CEO of the Bitcoin exchange BitInstant, on money laundering charges in relation to the illicit online market Silk Road, as well as on charges of operating an unlicensed money-transmitting business and failing to file a suspicious activity report. According to U.S. Attorney Preet Bharara, Shrem conspired with Silk Road user Robert Faiella to sell $1 million in Bitcoins to those looking to use it for illegal activity.

“Held to a higher standard”: In the wake of the news, a heated debate over the next steps that the Bitcoin Foundation should take started on the foundation’s forums. Some posters called for Shrem’s immediate resignation, while others debated the validity of the charges. The foundation’s general counsel, Patrick Murck, emphasized in a comment that the group was working “thoughtfully and deliberately” on a solution to the issue. “Serving on the board of the foundation is a privilege, and the foundation is a community resource,” he wrote. “Obviously our board members must be held to a higher standard. At the same time, let’s please take a breath and try to remember the good things that Charlie has done for the community.”

What the bylaws say: The foundation, which releases its bylaws on Github under the open-source MIT License, has rules specifically pertaining to such a situation. A board director, the bylaws state, can be removed for cause if convicted of a felony, found of unsound mind by a court of law, or found to have breached his or her duty under the association’s rules—but only through a majority vote of the board. A director also can be removed without cause by a two-thirds majority vote at a board meeting specifically called for that purpose. The bar for removing an officer is lower: He or she can be ousted without cause through a simple majority vote at a regularly scheduled board meeting.

What happened: In the end, Shrem resigned on his own on Tuesday, allowing the group to move forward. “While Charlie has contributed a great deal of personal effort and resources to enhance the adoption of Bitcoin worldwide, a prolonged legal dispute would inevitably detract from advancing that core mission,” Executive Director Jon Matonis wrote in a post on the foundation’s blog. “Therefore, in order to focus on his pending trial, it has been mutually decided that Charlie Shrem resign from the board of directors, effective immediately. The board accepted that resignation today.” The foundation emphasized that Shrem’s legal case was “not against Bitcoin or the community at large,” something made clear by Bharara, the U.S. attorney for the Southern District of New York, in his statement.

When faced with a board member’s legal troubles, what steps would you take to deal with the situation? Let us know your thoughts in the comments.

Former Bitcoin Foundation Vice Chair Charlie Shrem, who resigned after being arrested on money laundering charges. (Wikimedia Commons photo)