No, they arrested people for money laundering and finCEN violations.
No, they arrested people for buying and selling bitcoins, and are calling it money laundering.
Wrong. Those persons involved wanted/tried to use bitcoins for money laundering.
Wrong. Those persons involved sold bitcoin to undercover officers who told them they are going to commit crimes with bitcoin and the people still sold it to them. That and selling too many bitcoins means having to register as an MSB.
He's only being charged with the latter. The former is just to bias it. I call that entrapment anyway. He traveled to the location and was ready to exchange before they claimed how they were going to spend it. In any case, it's not clear that exchanging a currency with someone expressing an illegal intent to use said currency is illegal. What would of been a clear case of money laundering would of been the undercover claiming that it was drug profits they were trying to wash. Now, that is far different than just saying how you think you might spend something.
Nevertheless, it is clearly wise to back out of a trade when they say something that doesn't sound right, if you can. Until we know the details of this case, though, we don't even know if backing out was an option. Quite often they'll throw that in after the transaction is initiated.
When the case is closed, someone should interview the accused.