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Silk Road ‘Dread Pirate’ Seen Running Online Drug Bazaar

Photographer: Tomohiro Ohsumi/Bloomberg

The price of Bitcoins listed on the exchange Bitstamp Ltd. fell as much as 22 percent today. Bitcoins’ price has been unstable for months, plunging by more than 70 percent in the spring to about $60. The latest drop is one of the sharpest in the virtual currency’s history. Close

The price of Bitcoins listed on the exchange Bitstamp Ltd. fell as much as 22 percent... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

The price of Bitcoins listed on the exchange Bitstamp Ltd. fell as much as 22 percent today. Bitcoins’ price has been unstable for months, plunging by more than 70 percent in the spring to about $60. The latest drop is one of the sharpest in the virtual currency’s history.

An online $1.2 billion “black-market bazaar” where anonymous users paid Bitcoin digital currency to buy heroin, LSD, phony passports and computer hacking services was shut down by the U.S. and its alleged 29-year-old mastermind faces charges including conspiracy and attempted murder.

Ross William Ulbricht, who the U.S. said ran the “Silk Road Hidden Website” from January 2011 until last month, was known as “Dread Pirate Roberts” or “DPR,” after a character in the 1987 film “The Princess Bride.” Manhattan federal prosecutors said he operated “the most sophisticated and extensive criminal marketplace on the Internet.”

Ulbricht, who was also indicted in federal court in Maryland for allegedly trying to arrange the murder of an employee he feared would become a witness against him. He could face life in prison if he’s convicted in New York.

Federal agents seized Silk Road, along with Bitcoins worth $3.6 million, and shut down the site today, according to Julie Bolcer, a spokeswoman for Manhattan U.S. Attorney Preet Bharara. Ulbricht was arrested yesterday in San Francisco, and made his initial appearance today in federal court there.

“The site has sought to make conducting illegal transactions on the Internet as easy and frictionless as shopping online at mainstream e-commerce websites,” the government said in a civil forfeiture complaint unsealed today in Manhattan.

Bitcoins Plunge

The price of Bitcoins listed on the exchange Bitstamp Ltd. fell as much as 22 percent today. Bitcoins’ price has been unstable for months, plunging by more than 70 percent in the spring to about $60. The latest drop is one of the sharpest in the virtual currency’s history.

The Rise of Bitcoin

The legal documents made public today provide a window into an enterprise that, according to the government, generated more than a billion dollars in illicit sales and took in $80 million in commissions in less than three years. Electronic communications reviewed by federal agents show Ulbricht handled the routine personnel matters faced by any small-business man at the same time he was taking out a contract to kill one of his employees, prosecutors said.

Ulbricht is the John Gotti of cybercrime, said a spokeswoman for the FBI in New York, referring to the late New York City organized crime boss. She declined to be identified because the investigation is continuing.

Ulbricht’s Schools

Ulbricht graduated from the University of Texas with a physics degree in 2006, according to the complaint. He then attended graduate school at the University of Pennsylvania School of Materials Science and Engineering from 2006 to 2010.

DPR employed a small staff of administrators, whom he paid an average of $1,000 to $2,000 a week to help operate the site, FBI Agent Christopher Tarbell said in the complaint against Ulbricht. The administrators filed weekly reports on their activities, asked him for guidance in dealing with user inquiries and sought permission before taking leave.

Prosecutors in Maryland claim Ulbricht tried to have one of his administrators killed to prevent him from talking to police. In January, Ulbricht communicated with an undercover federal agent posing as a drug trafficker, saying the employee, who was not identified in the indictment unsealed today, had stolen money from Silk Road users and had been arrested.

‘Beat Up’

“I’d like him beat up, then forced to send the bitcoins he stole back,” Ulbricht allegedly said in a message. “Like sit him down at his computer and make him do it.”

Later, Ulbricht asked the undercover agent: “Can you change the order to execute rather than torture?” according to the indictment.

Ulbricht paid $80,000 for the employee’s murder, saying he feared the employee would give information to law enforcement, according to prosecutors. The undercover agent sent Ulbricht a staged photograph to make it appear the employee had been murdered, they said.

“I’m pissed I had to kill him… but what’s done is done,” Ulbricht said, according to the indictment. “I just can’t believe he was so stupid…. I just wish more people had some integrity.”

Ulbricht ran Silk Road on “The Onion Router” or “Tor” network, an Internet network designed to hide the identities of users by making it almost impossible to identify computers used to access or host websites, prosecutors said.

Illegal Drugs

On Sept. 23, Silk Road had almost 13,000 listings for illegal drugs, under categories including cannabis, dissociatives, ecstasy, intoxicants, opioids, precursors, psychedelics and stimulants, according to the complaint. Under its “services” heading, users could hire computer hackers, buy instructions for hacking cash machines or obtain a list of black-market contacts to get anonymous bank accounts, counterfeit money, guns, stolen credit card information and hit men.

A “seller’s guide” on the site advised users to vacuum seal packages containing drugs to avoid detection by police dogs and drug-detection machines.

On Aug. 5, 2011, DPR notified users of a new category of illegal items for sale on the site.

“We are happy to announce a new category in the marketplace called forgeries,” he said in a message posted on the site. “In this category, you will find offers for forged, government issued documents including fake IDs and passports.”

Virtual Currency

Silk Road required users to make purchases from Bitcoin accounts on the site. The virtual currency is used like cash to buy goods and services on the Internet. While Bitcoins are used for legitimate purposes, prosecutors said they are also popular with criminals who want to launder money or hide illegal transactions.

Beginning in November 2011, undercover agents made more than 100 drug purchases, including ecstasy, cocaine, heroin and LSD, from Silk Road vendors, according to the complaint.

In March, a Silk Road vendor known as FriendlyChemist told DPR through the site’s private message system that he had a list of the real names and addresses of Silk Road vendors and customers, which he obtained by hacking into the computer of another vendor, according to the complaint. FriendlyChemist threatened that he would publish the information on the Internet unless DPR paid him $500,000, which he said he needed to pay off his drug suppliers.

DPR corresponded with a Silk Road user called redandwhite who said he represented the people owed money by FriendlyChemist.

‘Wife +3 Kids’

“In my eyes, FriendlyChemist is a liability and I wouldn’t mind if he was executed,” DPR said March 27, according to the complaint. DPR provided FriendlyChemist’s name and address in White Rock, British Columbia, with “Wife +3 kids.” DPR later paid $150,000 to redandwhite to have FriendlyChemist killed, according to the complaint.

Tarbell said Canadian law enforcement authorities had no record of any Canadian resident with the name DPR passed on to redandwhite nor any record of a homicide in White Rock at the time. Ulbricht wasn’t charged in this second alleged murder-for-hire scheme.

In the New York case, Ulbricht is charged with narcotics-trafficking conspiracy, computer-hacking conspiracy and money-laundering conspiracy.

Maryland federal prosecutors charged him with conspiracy to distribute a controlled substance, attempted murder of a witness and using interstate commerce facilities in commission of murder-for-hire.

He made an initial appearance in a five-minute proceeding today in federal court in San Francisco. Ulbricht said he can’t afford an attorney and was assigned a federal public defender. He remains in custody.

The criminal case is U.S. v. Ulbricht, 13-mg-023287; the civil forfeiture case is U.S. v. Ulbricht, 13-cv-06919, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at Or rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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