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

from the behind-this-curtain... dept

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.

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

Ross Ulbricht's Defense In Silk Road Trial: Some Other Guy Did It, I'm Just The Fall Guy

from the good-luck-with-that dept

On Tuesday, the trial for Ross Ulbricht, the guy accused of being the "Dread Pirate Roberts" behind Silk Road (1.0) began, and apparently the defense's legal strategy is to claim some other guy was the real DPR, and Ulbricht was just the fall guy. According to Andy Greenberg:

In his opening statement in a Manhattan courtroom, defense attorney Joshua Dratel began with a surprising admission: that his client Ross Ulbricht was in fact the founder of the Silk Road.

But Dratel went on to explain that the site was meant merely to be a kind of “economic experiment” that Ulbricht only controlled for a brief time. The eventual adoptive owners of the Silk Road, Dratel claimed, would later trick Ulbricht into serving as the “fall guy” when they sensed an impending law enforcement crackdown.

“After a few months, he found it too stressful for him, and he handed it over to others,” Dratel told the jury, describing the Silk Road’s early days. “At the end, he was lured back by those operators to…take the fall for the people running the website.”

That's.... a different argument than has been suggested in the past. It also seems like it would require a bit more evidence. And that's going to be tough. The admission that he created the Silk Road apparently was necessary, as Ulbricht had apparently confessed that to an old friend whom the prosecutor plans on calling as a witness. However, Ulbricht's lawyer claims they may know who the real Dread Pirate Roberts is, but, again, this seems like it's a massive legal long shot. While I have many concerns about how Ulbricht was found out, and about whether or not merely operating an online marketplace should be illegal (leaving aside the question of whether and how Ulbricht participated in that market...), to argue that "some other guy did it" and then (conveniently) set Ulbricht up to be the fall guy... seems extremely far fetched. Greenberg's summary:

The new operators of the Silk Road “had been alerted the walls were closing in,” Dratel said. “That’s what compelled the Dread Pirate Roberts to put his escape plan into action,” framing Ulbricht, according to Dratel’s telling.

In Dratel’s version of events, Ulbricht’s store of bitcoins was simply the earnings from his early investments in the cryptocurrency, not the Silk Road profits the prosecutors allege. He points out that the bitcoins seized from Ulbricht are only a “small fraction” of the full $18 million the government has said the Dread Pirate Roberts earned in Silk Road commissions. And he implied that the evidence found on Ulbricht’s computer at the time of his arrest was falsified to “leave him holding the bag when the real operators of Silk Road knew their time was up.” He didn’t elaborate on how evidence could have been planted on Ulbricht’s PC.

“[The Dread Pirate Roberts] is someone who studiously avoided revealing his identity to anyone on the site…This same person goes to a public library and uses a public Wifi connection?” Dratel asked the jury. “That Ross is DPR is a contradiction so fundamental that it defies common sense.”

There's no doubt, if the US's argument is accurate, that Ulbricht was somewhat sloppy, but using that sloppiness as "proof" that he wasn't really DPR, while admitting he had founded Silk Road and when he was found logged into the admin... just seems unbelievable.

Filed Under: defense, dread pirate roberts, ross ulbricht, 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