Ross Ulbricht's Lawyers Claim That Mt. Gox CEO Was The Real Dread Pirate Roberts

from the behind-this-curtain... dept

Fri, Jan 16th 2015 4:13am — Mike Masnick

It's pretty rare that a trial has a real "surprise" unveiling or twist. It happens all the time in TV and movie courtrooms, but in real courtrooms... not so much. Most people know the basics. Someone may admit something surprising, or testimony can go awry, but the "big dramatic reveal" isn't so common. Yet in the trial of Ross Ulbricht, concerning whether he was or wasn't the "Dread Pirate Roberts" behind the Silk Road hidden market, things are already off to quite a start. We'd already mentioned his "some other dude did it" defense (while he admits that he did create the site, he argues he handed it over to someone else long before that). However, during yesterday's testimony Ulbricht's lawyer revealed who they believed the "other" Dread Pirate Roberts really was: Apparently they believe it was Bitcoin pariah and Mt. Gox CEO, Mark Karpeles.

If you don't follow the Bitcoin space, you might not recognize the name. However, in the Bitcoin space, Karpeles is widely despised. For a long time, Mt. Gox was the Bitcoin exchange for people who wanted to buy or sell Bitcoin. However it mysteriously shut down over a year ago under questionable circumstances -- with Karpeles arguing that Mt. Gox had all its Bitcoins stolen, while many people claimed that the evidence didn't suggest that at all, and that there may have been a lot of other fraud going on. In short, if you wanted to pick someone who is widely hated among Bitcoin supporters, Karpeles is the perfect "villain." And Ulbricht's lawyers make the case that the Homeland Security Investigator who infiltrated Silk Road and helped nab Ulbricht, Jared DerYeghiayan, originally suspected Karpeles:

"I have a wealth of evidence to prove that [Karpeles] is Dread Pirate Roberts," the agent wrote at the time.

Karpeles, who is from France, ran what was once the world's largest Bitcoin exchange, Mt. Gox, which was based in Tokyo. DerYeghiayan's theory was that Karpeles wanted to create a market that used Bitcoin in order to keep the price of the semi-anonymous cryptocurrency robust, which he believed was probable cause for Karpeles's arrest. (Mt. Gox went bankrupt in early 2014.)

"[Silk Road] would be a device for leveraging the value of Bitcoin, and if he could create a site independent of Bitcoin, you could control the value of Bitcoin," Dratel said, reading from DerYeghiayan's emails.

DerYeghiayan believed his evidence was so strong that he even drafted a search warrant for Karpeles's email in May of 2013.

Later, prosecutors objected to this effort, but the judge, Katherine Forrest, correctly pointed out that the idea was to "raise reasonable doubt that the defendant is the real DPR."

Karpeles, not surprisingly, is denying that he is DPR. According to Ars Technica:

"This is probably going to be disappointing for you, but I am not Dread Pirate Roberts," Karpeles told Ars via e-mail. "The investigation reached that conclusion already—this is why I am not the one sitting during the Silk Road trial, and I can only feel defense attorney Joshua Dratel trying everything he can to point the attention away from his client."

He also posted this to Twitter:

During the trial, the prosecution did also reveal that other investigators, in Baltimore, had seized a site that was run by Karpeles. The Vice article doesn't name that site, but Sarah Jeong points out that it was SilkRoadMarket.org. In his denial to Ars Technica, Karpeles discusses that domain:

"I have nothing to do with Silk Road and do not condone what has been happening there," Karpeles continued. "I believe Bitcoin (and its underlying technology) is not meant to help people evade the law, but to improve everyone's way of life by offering never thought before possibilities. As for the silkroadmarket.org domain, it was registered by a KalyHost.com customer and paid in Bitcoins (KalyHost is a service of Tibanne that has been up since 2009)."

Tibanne was Karpeles' company that supposedly purchased Mt. Gox. However, his argument here seems a bit questionable, as the Feds have released the seizure warrant showing that Karepeles was directly involved. As another article on Ars Technica summarizes:

Homeland Security used a confidential informant, based in Maryland, to conduct the investigation. The informant simply created accounts with Dwolla and Mt. Gox, bought bitcoins, and then changed them back into dollars. Tracing that money, HSI was able to see that the money passed through a Wells Fargo account, number 7657841313, which was created by a single authorized signer: Mark Karpeles, the president and CEO of Mt. Gox. The Dwolla account shows transfers to Dwolla going back to at least December 2011, according to the warrant.

That account was registered to Mutum Sigillum LLC, which is the company that supposedly registered the silkroadmarket.org domain. And the reason Karpeles got in trouble: Mutum Sigillum, when it opened the account, denied that it was in the money services business, even though it clearly was. All of this is a bit of a mess. Either way, the point here isn't to necessarily prove that Karpeles absolutely was DPR, but rather to show reasonable doubt to get Ulbricht off the hook. While a fascinating turn of events all around, this still seems like an uphill battle for Ulbricht's lawyers.

Mt Gox Dwolla Warrant 5 14 13 (PDF)Mt Gox Dwolla Warrant 5 14 13 (Text)

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Filed Under: dread pirate roberts, mark karpeles, reasonable doubt, ross ulbricht, silk road
Companies: kalyhost, mt. gox, mutum sigillum, silk road, tibanne

19 Comments

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Ninja (profile), 16 Jan 2015 @ 3:03am

Man, if they manage to get Ulbricht free I'm going to worship those lawyers. In any case with so many occurrences of law enforcement entrapment I'm not so fast to consider him guilty of anything.
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Sheogorath (profile), 16 Jan 2015 @ 4:20am

Errata
While [Ross Ulbricht] admits that he did create the site, he argues he handed it over to someone else long before that.
How does someone hand over a website before it even exists?
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Michael, 16 Jan 2015 @ 4:36am

Re: Errata
You have to do so while travelling 88 miles per hour in a Delorean.
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Anonymous Coward, 16 Jan 2015 @ 4:43am

I'm sorry in advance...
I'm finding this whole thing to be rather...inconceivable.
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Just Another Anonymous Troll, 16 Jan 2015 @ 4:55am

Re: I'm sorry in advance...
You keep using that word, inconceivable. I do not think it means what you think it means.
I've learned that in a court of law, nothing is inconceivable.
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Anon E. Mous (profile), 16 Jan 2015 @ 5:32am

Mean while back on Fantasy Island, Tattoo and Mr.Rourke ...
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Violynne (profile), 16 Jan 2015 @ 5:54am

To think Karpeles had no involvement with Silk Road, a darknet marketplace using Bitcoin (thus increasing its value), is highly unlikely.

No, make that impossible.

It's also not a strange coincidence the Bitcoins from Mt. Gox disappeared in about the same time as the investigation of Silk Road was at its apex.

Not a coincidence at all.

Karpeles appears to be a genius at fraud.

Wouldn't surprise me one bit if his "involvement" was overlooked by the feds in exchange for information leading to the take down of the infamous darknet site.
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Mason Wheeler (profile), 16 Jan 2015 @ 6:04am

DerYeghiayan's theory was that Karpeles wanted to create a market that used Bitcoin in order to keep the price of the semi-anonymous cryptocurrency robust, which he believed was probable cause for Karpeles's arrest. (Mt. Gox went bankrupt in early 2014.)

"[Silk Road] would be a device for leveraging the value of Bitcoin, and if he could create a site independent of Bitcoin, you could control the value of Bitcoin," Dratel said, reading from DerYeghiayan's emails.

The problem with the theory is that we already know what was happening at Mt. Gox due to leaked documents, and they didn't need an independent site to manipulate the value of Bitcoin; they were doing it themselves. The giant run-up in Bitcoin's price, and its subsequent crash, are both attributable almost entirely to fraudulent transactions being made by a bot running within Mt. Gox's servers. This makes the need for Karpeles to be running Silk Road in order to accomplish this superfluous.
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Greevar (profile), 16 Jan 2015 @ 7:34am

Re: Errata
It's simple. It wasn't published when he handed it over. I don't know if that is actually what happened, but that is a reasonable explanation.
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Anonymous Coward, 16 Jan 2015 @ 8:05am

Re:
But then the Feebs charged him with wire fraud, as well as the Japanese authorities.
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Anonymous Coward, 16 Jan 2015 @ 8:15am

"Dread" Pirate.........WTF

Regardless of the thing being discussed by the status quo, i recognise manipulatively implied association when i see one...........we're all PEOPLE
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That One Guy (profile), 16 Jan 2015 @ 8:29am

Re:
That was the name the owner of Silk Road went by, and is itself the name of a character in a movie/book, 'The Princess Bride', that's it, nothing more.
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John Fenderson (profile), 16 Jan 2015 @ 8:58am

Re: Re:
And since we're explaining it, there are two points about that character that are important here: first, the only thing that made the character "dread" was reputation. In actual fact, he wasn't dreadful. Second, the name "Dread Pirate Roberts" referred to an office rather than a specific person. There were multiple people who were the "Dread Pirate Roberts" over the years.
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Justme, 16 Jan 2015 @ 12:53pm

I love it. .
I don't think this will work, but it's not as easy to dismiss as you would think.

He can use the government's own documents to show some really unlikely coincidences, and if there is any hesitation on the prosecution's part to produce evidence from the other investigation it can use it to raise doubt.

If the circumstance's of his arrest weren't so damning, it would stand a better chance of success. But it strange enough to make me wonder if he somehow planned for this long before the arrest?
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Anonymous Coward, 16 Jan 2015 @ 2:19pm

This could all be solved so quickly (and cheaply) by simply telling the NYPD that Ulbricht and Karpeles are members of a non-caucasian ethnic group.

Then just wait for them to be strangled or shot in the back from 300foot away......
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Anonymous Coward, 16 Jan 2015 @ 3:49pm

"Nearly all of the roughly US$370 million in bitcoin that disappeared in the February 2014 collapse of Mt. Gox probably vanished due to fraudulent transactions, with only 1 percent taken by hackers, according to a report in Japan’s Yomiuri Shimbun newspaper, citing sources close to a Tokyo police probe."

http://www.pcworld.com/article/2864192/police-suspect-fraud-took-most-of-mt-goxs-missing-bitc oins.html

I hate how PCWorld doesn't date their articles. News of the Tokyo investigation linking fraud, not hackers, stealing 99% of Mt. Gox bitcoins came to light just this month in January.

I always suspected this would happen with bitcoins. Set up an exchange. Wait till there's a ton of money in it. Then cash out.
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Sheogorath (profile), 17 Jan 2015 @ 8:23am

Re: Re: Errata
Except that Mike claimed Ulbricht said he handed the site over long before it was created, and the act of creation is distinct from the act of publishing. After all, something cannot be published if it hasn't yet been created. Simples!
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Sheogorath (profile), 17 Jan 2015 @ 11:42pm

Re:
Ulbricht: "I can't breathe."
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Anonymous Coward, 18 Jan 2015 @ 2:11am

Re: Re: I'm sorry in advance...
I've learned that in a court of law, nothing means what you think it means.
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