Guy Accused Of Operating Silk Road 2.0 Arrested In SF... Just Like The Last One

from the yes,-the-FBI-can-track-you-down dept

This morning, the FBI excitedly announced that they had arrested Blake Benthall as the alleged operator of Silk Road 2.0, the replacement to the original Silk Road, which went down when the feds arrested Ross Ulbricht 13 months ago. As with Ulbricht, Benthall is a young tech-savvy guy living in San Francisco. Assuming he was actually running Silk Road 2.0, you'd think he'd have figured out that staying in the US while doing so is a serious occupational hazard. You can read the full complaint, but it again looks like (just like Ulbricht) he was somewhat sloppy in covering his own tracks. It didn't help that he apparently allowed an undercover FBI agent to become pretty high up as a "support" staffer, giving him access to insider forums.

The complaint (as with Ulbricht's) is an interesting read, though it will be interesting to see what other information comes out of the next few months. It's not clear how the FBI found the server (in a foreign country) and had it imaged. That raised some questions in Ulbricht's case, and will likely do the same here. Benthall bounced around a variety of jobs, including for RPX (a patent aggregator that has tried to position itself as the "not evil" version of Intellectual Ventures) and SpaceX. In fact, it appears that when Benthall took over Silk Road 2.0 from its original creator, he was employed by SpaceX at that time. The criminal complaint also notes that at some point he bought a Tesla with bitcoins, though he appears to have done so about a month after someone else made news for doing the same.

As for the actual charges, the specifics here matter. It still seems like a bit of a reach that merely running a marketplace online should make you liable for people doing illegal stuff in that marketplace, but things like Section 230 don't protect criminal activity. The complaint also has money laundering and CFAA hacking charges in there as well, though the details are still all a bit murky.

It appears that this takedown is part of a larger global effort to take down a bunch of "darknet" drug operators and websites, with Silk Road 2.0 just being the shiny one that many in the public had already heard about.

While it's reasonable to argue that this is criminal activity and should be taken down, others have suggested that by merely taking down online darkmarkets like Silk Road and Silk Road 2.0, the government is actually making the world more dangerous. Indeed, a study released a few months ago argued that Silk Road greatly reduced violence in the drug trade market. One could argue that keeping the drug market violent reduces incentives for people to get involved in it, but there is also the collateral damage that a violent drug market creates on third parties and innocent bystanders.

Either way, I doubt that this will stop Silk Road 3.0 (or something similar) from springing up before too long. And whether or not the FBI gets whoever runs that, this will be a continuous cat and mouse game, and I imagine that future darkmarkets will get more and more secure.

Filed Under: blake benthall, dark market, doj, fbi, ross ulbricht, silk road, silk road 2.0
Companies: rpx, silk road, silk road 2.0, spacex

DOJ In Silk Road Case: The FBI Doesn't Need Warrants To Hack Foreign Servers

from the prosecuting-domestically-but-kicking-down-doors-all-over-the-world dept

The government has filed another document in response to discovery requests in the Ross Ulbricht/Silk Road case. Again, it argues that there's no Fourth Amendment concerns here, so Ulbricht's legal team isn't entitled to receive any more information about how the FBI accessed the servers central to the government's case.

Assistant US Attorney Serrin Turner, speaking for the DOJ, basically states that intelligence agencies can hack into foreign servers without obtaining a warrant. If Ulbricht can't successfully argue that his rights were violated, then he can't argue for the suppression of evidence, no matter how it was actually obtained.

The government's arguments [pdf link] put Ulbricht in an uncomfortable position -- explain why he has an interest in these servers or stop challenging the government's submitted evidence.

[T]he burden is on Ulbricht to allege facts that, if proven, would establish a violation of his Fourth Amendment rights. The Horowitz Declaration manifestly fails to satisfy that burden. As a threshold matter, the declaration does not establish that Ulbricht had a reasonable expectation of privacy in the SR Server, as required for him to have standing to move for its suppression in the first place. Indeed, a declaration from a member of Ulbricht’s legal team such as Mr. Horowitz would be insufficient for this purpose anyway. To establish standing, a defendant must submit an “‘affidavit from someone with personal knowledge demonstrating sufficient facts to show that he had a legally cognizable privacy interest in the searched premises at the time of the search...’”

Ulbricht’s counsel would not have any personal knowledge of Ulbricht’s privacy interest in the SR Server; presumably, only Ulbricht would. Ulbricht’s assertion that he is not required to submit such an affidavit and that the issue of standing “must . . . be resolved through an evidentiary hearing,” (Reply Br. 18), is flatly wrong. Again, to merit a hearing, a defendant must first allege facts that, if proven at a hearing, would establish a violation of his personal Fourth Amendment rights – including facts sufficient to show the defendant had a protected privacy interest in the property searched. Without competently asserting such an interest, a defendant has no standing to bring a suppression motion at all, let alone demand a hearing on the motion.

Basically: admit the servers are yours and we can start discussing your Fourth Amendment rights. This is the DOJ asking Ulbricht to do its work for it. These servers are only allegedly Ulbricht's at this point.

Then the DOJ's lawyer moves on to say, "Actually, we don't really care what you do or don't assert. You have no Fourth Amendment rights to anything kept in that location."

Even if Ulbricht were to demonstrate that he has standing, which he plainly has failed to do, the Horowitz Declaration still would not warrant a hearing because it fails to allege facts that, if proven, would establish a violation of Ulbricht’s Fourth Amendment rights. The Horowitz Declaration nowhere alleges that the SR Server was either located or searched in a manner that violated the Fourth Amendment. It merely critiques certain aspects of the Tarbell Declaration concerning how the SR Server was located. The Horowitz Declaration fails to allege any alternative explanation of how the SR Server was located that, if proven, would establish that Ulbricht’s Fourth Amendment rights were somehow violated.

Turner dismisses claims that the NSA was involved or that illegal wiretaps were used, simply stating that the government would have turned over the applicable evidence if these accusations were true. (Which is highly doubtful -- especially in the NSA's case -- but theoretically true.) But then he goes on to say that even if hacking were involved, it simply doesn't matter.

In any event, even if the FBI had somehow “hacked” into the SR Server in order to identify its IP address, such an investigative measure would not have run afoul of the Fourth Amendment. Because the SR Server was located outside the United States, the Fourth Amendment would not have required a warrant to search the server, whether for its IP address or otherwise.

There's the message the DOJ is sending, at least in this case: if anything of yours resides in a foreign country, all protections are waived. All the government needs is to prove is that its search was "reasonable" and prompted by "legitimate governmental interests" -- not exactly the high bar the DOJ presents it as. Nothing is off-limits anywhere outside of this country. If the NSA hasn't already hoovered it up, the FBI's coming through the back door -- not exactly heartening news for citizens whose everyday lives heavily with extraterritorial entities like Internet services and cloud storage.

Filed Under: 4th amendment, cfaa, doj, fbi, foreign servers, hacking, ross ulbricht, silk road
Companies: silk road

Documents Released In Silk Road Case Add More Evidence To The 'Parallel Construction' Theory

from the it's-not-HOW-we-got-it,-it's-what-we-HAVE dept

Ever since the government first declared it had located the Silk Road server linked to Dread Pirate Roberts (allegedly Ross Ulbricht) thanks to a leaky CAPTCHA, there have been questions about the plausibility of this explanation. Ulbricht's attorneys suggested it wasn't the FBI, but rather the NSA, who tracked the alleged Silk Road mastermind down. This suggested parallel construction, something federal agencies have done previously to obscure the origin of evidence and something the FBI actively encourages local law enforcement agencies to do when deploying cell tower spoofers.

Technical documents filed in response to discovery requests seem to solidify the parallel construction theory. Brian Krebs at Krebs on Security and Robert Graham at Errata Security have both examined the government's filings (the Tarbell Declaration [pdf]) and noted that what the government said it did doesn't match what's actually on display.

Krebs' article quotes Nicholas Weaver, a researcher at the International Computer Science Institute at Berkeley, who points out that where the FBI agents say they found the leak doesn't mesh with the server code and architecture.

“The IP address listed in that file — 62.75.246.20 — was the front-end server for the Silk Road,” Weaver said. “Apparently, Ulbricht had this split architecture, where the initial communication through Tor went to the front-end server, which in turn just did a normal fetch to the back-end server. It’s not clear why he set it up this way, but the document the government released in 70-6.pdf shows the rules for serving the Silk Road Web pages, and those rules are that all content – including the login CAPTCHA – gets served to the front end server but to nobody else. This suggests that the Web service specifically refuses all connections except from the local host and the front-end Web server.”

Translation: Those rules mean that the Silk Road server would deny any request from the Internet that wasn’t coming from the front-end server, and that includes the CAPTCHA.

Weaver says that FBI agents would have been served nothing at all when attempting to access the server without using Tor. The server simply wasn't leaking into the open web. The more likely explanation is that the FBI contacted the IP directly and accessed a PHPMyAdmin page.

Robert Graham's analysis of the documents notes something slightly different than Weaver, but still arrives at the same conclusion.

Brian Krebs quotes Nicholas Weaver as claiming "This suggests that the Web service specifically refuses all connections except from the local host and the front-end Web server". This is wrong, the web server accept all TCP connections, though it may give a "403 forbidden" as the result.

Even with this detail being off, the parallel construction theory still fits. Graham notes that the Tarbell Declaration (the filing that contains the official explanation of how the Silk Road server was accessed) is noticeably light on supporting documentation -- like screenshots, packet logs or code snippets.

Now that the government has been forced to hand over more technical documentation, it's original story is falling apart.

Since the defense could not find in the logfiles where Tarbell had access the system, the prosecutors helped them out by pointing to entries that looked like the following:

199.170.71.133 - - [11/Jun/2013:16:58:36 +0000] "GET / HTTP/1.1" 200 2616 "-" "Mozilla/5.0 (Windows NT 6.1; WOW64) AppleWebKit/537.36 (KHTML, like Gecko) Chrome/27.0.1453.110 Safari/537.36"

199.170.71.133 - - [11/Jun/2013:16:58:36 +0000] "GET
/phpmyadmin.css.phpserver=1&lang=en&collation_connection=utf8_general_ci&token=451ca1a827cda1c8e80d0c0876e29ecc&js_frame
=right&nocache=3988383895 HTTP/1.1" 200 41724 "http://193.107.86.49/" "Mozilla/5.0 (Windows NT 6.1; WOW64) AppleWebKit/537.36 (KHTML, like Gecko) Chrome/27.0.1453.110 Safari/537.36"

However, these entries are wrong. First, they are for the phpmyadmin pages and not the Silk Road login pages, so they are clearly not the pages described in the Tarbell declaration. Second, they return "200 ok" as the error code instead of a "401 unauthorized" login error as one would expect from the configuration. This means either the FBI knew the password, or the configuration has changed in the meantime, or something else is wrong with the evidence provided by the prosecutors.

The NSA as the purposefully-missing link makes sense. First off, Ulbricht's back end server was located in Iceland. Graham points out basic authentication was provided by this server via Port 80. If the NSA was monitoring traffic in and out of Iceland (as it is legally able to do), it could easily have captured a password for this server.

Furthermore, the front end server (located in Germany -- also within the NSA's established dragnet) would return "forbidden" errors when accessed outside of Tor, but would not when accessing PHP files (as Weaver noted). To get to the admin page, other possibly non-NSA-related tactics could have been used. (Graham suggests a couple of different methods well within the FBI's technical grasp and abilities -- "scanning the entire Internet for SSL servers, then searching for the string "Silkroad" in the resulting webpage" or doing the same but correlating the results with traffic traveling across the Tor onion connection.) However, none of the above is suggested by Tarbell's recounting of the events. In fact, the official narrative is vague enough that almost any explanation could fit.

Tarbell doesn't even deny it was parallel construction. A scenario of an NSA agent showing up at the FBI offices and opening a browser to the IP address fits within his description of events.

Graham calls the declaration from Special Agent Tarbell "gibberish" (and points out that Ulbricht's opsec "sucks"). Ulbricht's legal team is still pushing for the government to explain why its declaration doesn't match the details it's handed over during discovery. A new filing by his attorney, Joshua Horowitz, isn't much kinder, calling the declaration "implausible." [pdf link] The presiding judge has given the government until the end of Monday to respond to Horowitz's filing… if it wants to. [pdf link]

Defendant has submitted a declaration from Joshua Horowitz in support of his motion and request for an evidentiary hearing.

If the Government has any response to the factual statements (and/or relevance of the factual statements) asserted therein, it should file such response by C.O.B., October 6, 2014 (if possible).

The government may not feel compelled to respond. A filing from earlier in September (but added to the docket on Oct. 1st) suggests it's pretty much done discussing Ulbricht's "NSA boogeyman." [pdf link]

In light of these basic legal principles, the Government objects to the September 17 Requests as a general matter on the ground that no adequate explanation has been provided as to how the requested items are material to the defense. Most of the requests appear to concern how the Government was able to locate and search the SR Server. Yet the Government has already explained why, for a number of reasons, there is no basis to suppress the contents of the SR Server:

(1) Ulbricht has not claimed any possessory or property interest in the SR Server as required to establish standing for any motion to suppress;
(2) the SR Server was searched by foreign law enforcement authorities to whom the Fourth Amendment does not apply in the first instance;
(3) even if the Fourth Amendment were applicable, its warrant requirement would not apply given that the SR Server was located overseas; and
(4) the search was reasonable, given that the FBI had reason to believe that the SR Server hosted the Silk Road website and, moreover, Ulbricht lacked any expectation of privacy in the SR Server under the terms of service pursuant to which he leased the server.

Particularly given these circumstances, it is the defendant’s burden to explain how the contents of the SR Server were supposedly obtained in violation of the defendant’s Fourth Amendment rights and how the defendant’s discovery requests are likely to vindicate that claim. The defense has failed to do so, and the Government is unaware of any evidence – including any information responsive to the defense’s discovery requests – that would support any viable Fourth Amendment challenge. Instead, the defense’s discovery requests continue to be based on mere conjecture, which is neither a proper basis for discovery nor a proper basis for a suppression hearing.

The response document notes that it has already responded with several documents, won't be responding to a host of other requests, but most tellingly, says the government is "not aware" of any supporting documentation for Agent Tarbell's declaration. (As noted by Robert Graham, the declaration as written is "impossible to reconstruct," with the lack of technical details being a large part of that.)

5. The name of the software that was used to capture packet data sent to the FBI from the Silk Road servers.

Other than Attachment 1, the Government is not aware of any contemporaneous records of the actions described in paragraphs 7 and 8 of the Tarbell declaration. (Please note that Attachment 1 is marked “Confidential” and is subject to the protective order entered in this matter.)

6. A list of the “miscellaneous entries” entered into the username, password, and CAPTCHA fields on the Silk Road login page, referenced in the SA Tarbell’s Declaration, at ¶ 7.

See response to request #5.

7. Any logs of the activities performed by SA Tarbell and/or CY-2, referenced in ¶ 7 of SA Tarbell’s Declaration.

See response to request #5.

8. Logs of any server error messages produced by the “miscellaneous entries”referenced in SA Tarbell’s Declaration.

See response to request #5.

9. Any and all valid login credentials used to enter the Silk Road site.

See response to request #5.

10. Any and all invalid username, password, and/or CAPTCHA entries entered on the Silk Road log in page.

See response to request #5.

11. Any packet logs recorded during the course of the Silk Road investigation, including but not limited to packet logs showing packet headers which contain the IP address of the leaked Silk Road Server IP address [193.107.86.49].

See response to request #5.

Parallel construction matters, but the government claims it doesn't. It will probably continue to declare it a non-issue so long as the courts agree that Ulbricht's Fourth Amendment rights weren't violated. Ulbright's Fourth Amendment defense is admittedly a disaster, making claims that have nearly no chance of holding up under judicial scrutiny. The Silk Road indictment is a lousy test case for challenging parallel construction.

But parallel construction spills over into purely domestic investigations where Fourth Amendment rights are supposedly guaranteed. As long as the "expectation of privacy" isn't violated -- according to the government's definition of what does and doesn't enjoy this "expectation" -- the origin of the evidence isn't really up for discussion, according to the government's own filing. And what the government says here is that what was ultimately obtained matters more than how it was obtained. Parallel construction covers up invasive surveillance and investigative tactics, providing courts with evidence that looks clean but was illicitly gathered.

Filed Under: captcha, christopher tarbell, doj, fbi, investigation, parallel construction, ross ulbricht, silk road
Companies: silk road

DOJ Says No NSA Help Was Needed To Find Dread Pirate Roberts Since He Misconfigured His CAPTCHAs

from the oops dept

The lawyers for Ross Ulbricht have been tossing an awful lot of speculative legal theories at the legal wall in his defense in the past few months, and none of them seem to be sticking. The most recent attempt was to argue that the process by which the DOJ/FBI got access to Silk Road's servers must have violated the 4th Amendment, mainly because it was "hidden" via Tor, and Ulbricht couldn't figure out how else the FBI tracked down the servers. In response, the DOJ has revealed the details of how it tracked down the servers via a very readable court filing where you can almost feel the snark dripping from the US Attorneys' Office, as they mock both the speculative and hyperbolic nature of the claims, and reveal that Ulbricht basically misconfigured his CAPTCHA login feature to leak the IP address.

Contrary to Ulbricht’s conjecture that the server hosting the Silk Road website (the “SR Server”) was located by the NSA, the server was in fact located by the FBI New York Field Office in or about June 2013.... The Internet protocol (“IP”) address of the SR Server (the “Subject IP Address”) was “leaking” from the site due to an apparent misconfiguration of the user login interface by the site administrator – i.e., Ulbricht.... FBI agents noticed the leak upon reviewing the data sent back by the Silk Road website when they logged on or attempted to log on as users of the site.... A close examination of the headers in this data revealed a certain IP address not associated with the Tor network (the “Subject IP Address”) as the source of some of the data.... FBI personnel entered the Subject IP Address directly into an ordinary (non-Tor) web browser, and it brought up a screen associated with the Silk Road login interface, confirming that the IP address belonged to the SR Server....

Based on publicly available information, the Subject IP Address was associated with a server housed at a data center operated by a foreign server-hosting company in Iceland.... Accordingly, on June 12, 2013, the United States issued a request to Iceland for Icelandic authorities to take certain investigative measures with respect to the server, including collecting routing information for communications sent to and from the server, and covertly imaging the contents of the server.... The Reykjavik Metropolitan Police (“RMP”) provided routing information for the server soon thereafter, which showed a high volume of Tor traffic flowing to the server – further confirming that it was hosting a large website on Tor.... Subsequently, after obtaining the legal process required under Icelandic law to search the server, and after consulting with U.S. authorities concerning the timing of the search, the RMP covertly imaged the server and shared the results with the FBI on or about July 29, 2013.... Forensic examination of the image by the FBI immediately and fully confirmed that the server was in fact hosting the Silk Road website, i.e., that it was in fact the SR Server.... The server contained what were clearly the contents of the Silk Road website – including databases of vendor postings, transaction records, private messages between users, and other data reflecting user activity – as well as the computer code used to operate the website.

Later, the filing points out:

It does not matter that Ulbricht intended to conceal the IP address of the SR Server from public view. He failed to do so competently, and as a result the IP address was transmitted to another party – which turned out to be the FBI – who could lawfully take notice of it.

While the DOJ's story is compelling (and while I'm sure some will still insist "parallel construction," it seems like there would need to be a lot more evidence of that happening), there are some other interesting tidbits in the filing. Ulbricht had argued that the search of the server was unconsitutional because his property was searched without a warrant. However, the DOJ points out that since the server was in Iceland, the 4th Amendment doesn't apply. But in defending the lack of a warrant, it's interesting that the DOJ admits that under the Stored Communications Act, a "warrant was not even an option... given that the SR Server was controlled by a foreign data center."

That seems to contradict the DOJ's claims in its ongoing fight with Microsoft over accessing emails stored in Ireland. There, the DOJ insists that a warrant under the SCA is not only very much an option, but that it requires Microsoft to hand over the data. The DOJ says the cases are different since Microsoft is a US entity, and thus the SCA compels the US entity to reveal data no matter where it is, but that doesn't apply since the Silk Road server was controlled by an Icelandic company.

There remain some interesting legal questions raised by the prosecution against Ulbricht, but so far, the extremely speculative nature of his defense doesn't seem particularly likely to get anywhere. Also, the leaky CAPTCHA should serve as a reminder that, despite all the freakouts and concerns from law enforcement about how the internet and things like Tor will make it impossible to catch criminals, people will almost always mess up somehow and reveal breadcrumbs back to who they are.

Filed Under: 4th amendment, doj, dread pirate roberts, fbi, investigation, nsa, ross ulbricht
Companies: silk road

Ross Ulbricht Pulls Out A 4th Amendment Defense For Pretty Much Everything

from the that's-not-going-to-work dept

Ross "Dread Pirate Roberts" Ulbricht, the alleged mastermind behind The Silk Road dark marketplace, has been trying (and failing) with some creative legal theories. The latest is that his lawyers are basically arguing that almost all of the evidence was collected in ways that violate the 4th Amendment. We're certainly big proponents of the 4th Amendment around these parts, and frequently lament the way the courts and law enforcement have chipped away at it (sometimes with dynamite). However, the arguments here seem like a massive longshot.

The key to the argument is that it's somewhat murky how law enforcement found the Silk Road servers, and so Ulbricht is arguing that there was likely a 4th Amendment violation there, spoiling much of the rest of the evidence against him.

However, that event – location of the Silk Road Servers – is shrouded in mystery, as the means and manner in which that discovery was accomplished has not been disclosed – indeed, it was not disclosed in any of the applications for warrants or other orders to search and seize ESI and other material in this case.

That presents a threshold issue: whether locating the Silk Road Servers was the result of legitimate investigative technique(s), or the product of some unlawful intrusion, digital or otherwise. It also presents the issue whether the magistrate judges who approved the searches and seizures were remiss in not at least satisfying themselves that the information upon which the warrant was based was lawfully obtained and/or reliable.

The more specific claims make some interesting points, but are likely to fall flat:

In addition, many of the warrants – in particular, those directed at Mr. Ulbricht’s laptop, and his gmail and Facebook accounts – constitute the general warrants abhorred by the Framers, and which led directly to the Fourth Amendment. The wholesale collection and study of Mr. Ulbricht’s entire digital history without limitation – expressly sought in the warrants and granted – represent the very type of indiscriminate rummaging that caused the American colonists so much consternation.

The argument, not surprisingly, is relying on the new Supreme Court ruling in the Riley / Wurie cases, about the need for a warrant to search mobile phones. That is an important ruling bringing back certain 4th Amendment protections, but Ulbricht's lawyers are really trying to stretch it to argue that it applies to the warrants issued against him.

There may be some real issues in how the feds got access to the Silk Road servers, but to claim that other searches (and even actual warrants) were unconstitutional in light of Riley would require an almost ridiculously broad reading of the Riley ruling. That case involved searches of mobile phones that were on someone's person -- not a coordinated effort to track down someone they believed to be a criminal.

I do think there are some real issues with the case against Ulbricht, mainly focused on his liability for the actions done by users of Silk Road, but these kinds of broad attempts to throw anything at the wall are likely to be rejected, and can actually piss off judges who feel that lawyers are just trying to throw up a smoke screen.

There are important cases to be had in challenging various digital searches and how the 4th Amendment applies to them, but it's doubtful that this is a particularly good test case.

Filed Under: 4th amendment, dread pirate roberts, ross ulbricht, warrants
Companies: silk road

Judge Not Impressed By Ross Ulbricht's 'But Bitcoin Isn't Money' Defense

from the wanna-try-that-again dept

Ross "Dread Pirate Roberts" Ulbricht's attorneys had recently seized on some debate within the US government over whether or not Bitcoin was actually money to try to sneak through a loophole to get out of the money laundering charges against him. As you may recall, the IRS recently declared that virtual currency was more akin to equity/property than money. And Ulbricht's lawyers hoped that distinction might help. It did not. The judge clearly wasn't buying it:

[T]he defendant alleges that he cannot have engaged in money laundering because all transactions occurred through the use of Bitcoin and thus there was therefore no legally cognizable "financial transaction." The Court disagrees. Bitcoins carry value - that is their purpose and function - and act as a medium of exchange. Bitcoins may be exchanged for legal tender, be it U.S. dollars, Euros, or some other currency. Accordingly, this argument fails.

Later in the ruling, the judge goes even further:

In fact, neither the IRS nor FinCEN purport to amend the money laundering statute (nor could they). In any event, neither the IRS nor FinCEN has addressed the question of whether a "financial transaction" can occur with Bitcoins. This Court refers back to the money laundering statute itself and case law interpreting the statute.

It is clear from a plain reading of the statute that "financial transaction" is broadly defined.... It captures all movements of "funds" by any means, or monetary instruments. "Funds" is not defined in the statute and is therefore given its ordinary meaning.

While this was the headline argument, many of the other arguments that Ulbricht's lawyers made were more important -- focusing on the nature of Ulbricht merely setting up the marketplace, and not being liable for how it's used. Judge Katherine Forrest is, once again, not impressed. It's worth pointing out here, that Section 230 liability protections do not apply to criminal behavior, so that particular out wasn't ever really on the table. But the general concept of intermediary liability is clearly tied up in this case. In particular, here, Ulbricht argued that there was no "conspiracy" since he wasn't "conspiring" with users of Silk Road, just setting up the marketplace. The court notes that Ulbricht appeared to be much more involved than just merely running an open market:

Ulbricht argues that his conduct was merely as a facilitator - just like eBay, Amazon, or similar websites.6 Even were the Court to accept this characterization of the Indictment, there is no legal prohibition against such criminal conspiracy charges provided that the defendant possesses (as the Indictment alleges here) the requisite intent to join with others in unlawful activity.

Moreover, in this case, the charges in the Indictment go further than Ulbricht acknowledges. The Indictment alleges that Ulbricht engaged in conduct that makes Silk Road different from other websites that provide a platform for individual buyers and sellers to connect and engage in transactions: Silk Road was specifically and intentionally designed for the purpose of facilitating unlawful transactions. The Indictment does not allege that Ulbricht is criminally liable simply because he is alleged to have launched a website that was - unknown to and unplanned by him - used for illicit transactions. If that were ultimately the case, he would lack the mens rea for criminal liability. Rather, Ulbricht is alleged to have knowingly and intentionally constructed and operated an expansive black market for selling and purchasing narcotics and malicious software and for laundering money. This separates Ulbricht's alleged conduct from the mass of others whose websites may - without their planning or expectation - be used for unlawful purposes.

In other words, it's one thing to set up a marketplace. It's another thing to set up a marketplace with the specific intent of using that marketplace to enable criminal behavior. I'm still a little troubled by the possible implications of this -- and even how it might be read back towards cases like the ridiculous lawsuit against Tor we were just discussing. Overall, though, it seems clear that the court isn't going to let Ulbricht off easy. There appears to be some level of guilt-by-association in this latest ruling, some of which may lead to interesting legal challenges down the road, but it's pretty clear that Ulbricht has a long legal road in front of him -- meaning that it's actually likely he'll work out some sort of plea deal rather than continue to fight.

Filed Under: bitcoins, conspiracy, dread pirate roberts, money laundering, ross ulbricht, secondary liability, silk road
Companies: silk road

Apparently Hiring An Actual Hitman Online Is More Difficult Than Dread Pirate Roberts Imagined

from the 0-for-6 dept

The big news out of the latest filing from the government against Ross Ulbricht as the alleged "Dread Pirate Roberts" of Silk Road is that they've now upped the number of people he hired hitmen to kill from two all the way to six. As in the past, reading the actual government filing is fascinating, and will require a rewrite of whatever script Hollywood is currently rushing into production about Ulbricht's story. Reading through the details, Ulbricht appears to have been more or less goaded into agreeing to "kill" four more people, after the guy who supposedly ran the hit on one of Ulbricht's blackmailers told him that there were other people in on the blackmail plot. Ulbricht comes off as incredibly credulous and the guy he paid, a user named "redandwhite", appears to have taken full advantage of this blind trust:

Two days later, on April 8, 2013, “redandwhite” offered to “hit [Victim-3] only” for “150 [thousand] just like last time.” However, “redandwhite” cautioned that, if they only took out Victim-3 and not Victim-3’s three co-residents, they would not be able to “do [the hit] at their place because there are always at least a few of them there . . . . So we wouldn’t be able to recover any of his things.” “redandwhite” stated that he would “prefer to do all 4” in order to have a “chance of recovering any potential product/money he may have,” adding: “Anything recovered would be split 50/50 with you.” “redandwhite” quoted Ulbricht a price of “500k USD” to do “all 4.” Ulbricht responded later that day: “hmm… ok, I’ll defer to your better judgment and hope we can recover some assets from them.” Ulbricht added that he had gone ahead and sent “$500k in btc [Bitcoins] (3,000 @ $166/btc)” to a Bitcoin address designated by “readandwhite” as payment. As with Ulbricht’s prior transfer to “redandwhite,” this transfer of 3,000 Bitcoins also appears on the Blockchain, confirming that it was in fact sent.

One week later, on April 15, 2013, “redandwhite” wrote to Ulbricht: “That problem was dealt with. I’ll try to catch you online [on a chat service] to give you details. Just wanted to let you know right away so you have one less thing to worry about.” Ulbricht replied: “thanks, see you on chat.”

Now, since five of the six "hits" were all "done" by the same guy -- and those last four really look like him just taking advantage of a gullible Ulbricht -- perhaps this isn't so much about the difficulty in hiring a hitman online as it is about how easy it is to fool Ross Ulbricht. Still, it strikes me as somewhat revealing that someone could pay significant sums of money to conduct six assassinations, and not a single one of them actually occurred. Once again, not everything people claim online turns out to be true.

That said, there is so much more evidence now being presented against Ulbricht, including his journal that covers the whole plan from the start up until his arrest, that Ulbricht's claims that it's not him are looking very, very weak. It also appears to disprove the claim that has been made by some that Ulbricht didn't start Silk Road, but was merely one in a line of DPRs. That appears to simply be a myth that Ulbricht used, playing off of his username and its namesake in The Princess Bride.

Filed Under: dread pirate roberts, hit men, ross ulbricht, silk road

Silk Road Employee Who Dread Pirate Roberts Tried To Kill Comes Forward

from the not-quite-what-you'd-expect dept

When the feds arrested Ross Ulbricht saying that he was the Dread Pirate Roberts who had created and run Silk Road, the dark web e-commerce site for all sorts of illegal products, we noted that there were actually two cases filed against Ulbricht, with the second one involving some really crazy claims of Ulbricht's attempt to hire someone to kill a Silk Road employee. Of course, the "hit man" he hired was actually an undercover agent, leading to a bizarre operation in which the Silk Road employee's death was faked, complete with bloody photos. More details have now come out as the employee, Curtis Clark Green, has released a statement providing some details. Believe it or not, this Silk Road employee is a 47-year-old grandfather whose day job is working "at a non-profit dedicated to helping people with learning disabilities." Not exactly what most people probably expected.

In the statement, he notes that he was basically a customer service person for Silk Road, helping out when there were problems and also keeping an eye out for potential fraud and/or law enforcement activity to report to Ulbricht, whose name and identity he never knew. He insists that he "never used illegal drugs and I never intended to be directly involved in illegal drug deals," but it does appear that he does admit to the basic claims that were in that indictment against Ulbricht: that he "helped" a drug dealer (who turned out to be an undercover agent) by agreeing to receive a large amount of cocaine. That resulted in his arrest, which in turn lead to Ulbricht trying to have him killed, claiming money was stolen. Green insists no money was actually stolen.

Once again, it seems like the real story may be even more fascinating than anything Hollywood could make up.

Filed Under: curtis clark green, dread pirate roberts, ross ulbricht
Companies: silk road

Feds Apparently Didn't Communicate With Each Other About Various Silk Road Investigations

from the left-hand,-right-hand dept

There's been plenty of talk about Silk Road since the site got shut down and Ross Ulbricht was arrested and accused of being Dread Pirate Roberts behind the site. Of course, it struck us as interesting that hours after the arrest and the criminal complaint in NY, there was also an indictment in Maryland. Since then, there have been a bunch of Silk Road related arrests concerning drug dealers who used the site. One of those, as named in our last post on this, was Steven Sadler of Bellevue, Washington.

The folks over at The Smoking Gun have a bunch of details about Sadler, which show that he wasn't discovered as a result of the Ulbricht arrest, but rather had been raided months ago and became an informant for the feds. His arrest and court hearing were rushed into place after the Ulbricht arrest and the site shut down:

The hastily arranged court appearance for Sadler was prompted by the FBI's arrest a day earlier of Ross Ulbricht, who has been charged with being the mastermind behind the Silk Road site, which operated on the "darknet" (or "deep web"). Simultaneous to Ulrich's bust, federal investigators shut down the two-year-old site, which relied on the anonymizing tool Tor to shield both vendors and patrons.

During the October 2 hearing, federal prosecutor Thomas Woods told Tsuchida that "Mr. Sadler has been cooperating, working for the government for the past two months." Referring to "unusual circumstances," Woods noted that "through reasons unrelated to" Sadler, his cooperation "abruptly came to an end this morning." Sadler's lawyer told Tsuchida that her client was in "constant communication with the government."

Of course, this makes you wonder just how (un)coordinated the various efforts against Silk Road really were by the feds. We've got two separate lawsuits filed against Ulbricht in two separate courts, and now we find out that the feds had already been working one of the site's top dealers (Sadler went by the name "Nod" on the site). You'd think the feds would be a bit more communicative with each other over their various attempts to investigate Silk Road, its operators and users.

The details also suggest a few other informants, including one who taught investigators how to use Silk Road:

Investigators also were aided by a confidential informant who agreed to cooperate after agents seized several packages mailed to her by Silk Road heroin dealers. In a TSG interview, the woman--a business owner in her thirties--said she had made several heroin purchases from "Nod" and allowed investigators to take over her Silk Road account to make undercover drug purchases.

A self-described "junkie" who has been clean since May, the informant said she helped a postal inspector navigate Silk Road and explained how to fund an account with Bitcoin, the virtual currency used for purchases. When an undercover drug purchase failed to arrive, a postal inspector--apparently sensing a rip-off--sent the woman an e-mail seeking advice as to how to address the missing Express Mail parcel with the narcotics seller. When the informant referred to the package "going missing," the inspector replied, "I know the package is not missing, I work for the post office…hahaha. They just have not sent it."

Either way, it seems likely that more arrests are coming, but it still seems to suggest a level of dysfunction among the feds with regards to coordinating their investigations.

Filed Under: communication, law enforcement, ross ulbricht, silk road, steven sadler
Companies: silk road

DOJ Hasn't Actually Found Silk Road Founder's Bitcoin Yet

from the they're-still-out-there dept

With the DOJ tracking down and arresting the alleged founder/owner of Silk Road, Ross Ulbricht, it was noted that it had also seized 26,000 or so Bitcoins. However, in the criminal complaint against Ulbricht, it suggested that his commissions were in the range of $80 million -- or about 600,000 Bitcoins. You might notice the disconnect between the 26,000 Bitcoins seized and the supposed 600,000 Ulbright made. It now comes out that those 26,000 Bitcoins aren't even Ulbricht's. Instead, they're actually from Silk Road's users. In other words, these were Bitcoins stored with user accounts on Silk Road. Ulbricht's actual wallet is separate from that, and was apparently encrypted, so it would appear that the FBI does not have them, nor does it have any way of getting at them just yet. And given that some courts have argued you can't be forced to give up your encryption, as it's a 5th Amendment violation, those Bitcoins could remain hidden -- though, I could see the court ordering him to pay the dollar equivalent in restitution (though still not sure that would force him to decrypt the Bitcoins).

The other amusing bit in all of this is that the FBI's Bitcoin wallet has been identified and renamed as "Silkroad Seized Coins" allowing users to send the FBI tiny amounts of Bitcoin with public messages attached, some of which are fairly amusing -- and many of which are critical of the government and the takedown of Silk Road. Personally, I like the one that reads: "This page shows how Bitcoin is more transparent than the US government."

Kash Hill, over at Forbes (the link above) who highlighted this story, also asked the FBI about what they're going to do with all that Bitcoin. Apparently, the plan is to hold onto it for now, and then "liquidate it" after any trial is concluded, though the FBI's spokesperson admits that "this is kind of new to us." Does that mean that someday soon folks will be able to buy some Bitcoin at a government auction?

Filed Under: bitcoin, bitcoin wallet, doj, fbi, ross ulbricht
Companies: silk road