Mr Shrem claimed, in a background report cited at a bail hearing on Monday, that Bitinstant had been trying to raise money to continue operations, but the business shut down last summer when it became clear it needed to do more to comply with existing regulation. The website has been taken down completely in recent weeks.
By backing Mr Shrem, the colorful 24-year-old face of bitcoin in New York, its most vibrant entrepreneurial community, the twins have raised questions over their due diligence and judgment, just as they try to establish Winklevoss Capital as a player on the city's angel investment scene.
When the brothers became interested in bitcoin in 2012 and decided to start buying the currency, Cameron additionally pushed to back some of the emerging bitcoin companies. Bitinstant was then one of the most high profile in the market for exchanging dollars for bitcoin.
(Read more: The Winklevosses: Bitcoin worth 100 times more)
It emerged at the hearing that the twins have continued to evaluate further investments, including in a bitcoin ATM business.
The twins began buying bitcoin months before it became an international talking point, when a single coin could still be purchased for less than $10. By last April, when they went public with their holdings, the currency was trading at $120 and their stash was worth $11m. On the MTGox exchange, the price for one bitcoin on Tuesday was $944.