There are various illegal parts: Creating a currency for example. But even if one can walk around the definition of a currency, exchanging it for dollars is most probably questionable: You give banknotes to someone in exchange for a token which you don’t know how it was obtained. In most cases, it is facilitating drug exchange and hitmen, so, unless one can prove where a Bitcoin comes from, I’m surprised it is even legal to exchange it for tender money.
The whole thing should have been sued from the start.