Oct. 3 (Bloomberg) -- The Silk Road website, before being shut this week by the U.S., was a cyber-bazaar of the criminal underworld that connected buyers and sellers of heroin, cocaine and hacking services. It combined EBay-style customer reviews and shipping tips with an open disregard for the law.
“We are happy to announce a new category in the marketplace called Forgeries,” the site’s alleged 29-year-old overseer, who called himself Dread Pirate Roberts, said in a message posted Aug. 5, 2011, according to a criminal complaint in Manhattan federal court. “In this category, you will find offers for forged, government issued documents including fake IDs and passports.”
U.S. agents arrested the man they believe is Dread Pirate Roberts and seized the site, describing it in the complaint unsealed yesterday as “the most sophisticated and extensive criminal marketplace on the Internet.” Silk Road used Bitcoin digital currency to generate the equivalent of $1.2 billion in illicit sales and take in $80 million in commissions in less than three years, according to the complaint.
“High quality #4 heroin all rock directly from key,” read one pitch cited in the complaint. The listing bore a photo of alleged heroin chunks. The seller, listed as gotsitall 5.0, promised Monday shipping in vacuum-sealed packages for next-day delivery.
“AMAZING products at more than reasonable prices,” wrote one reviewer. “His customer support is some of the best I have ever encountered.”
Prosecutors allege Ross William Ulbricht, 29, was Dread Pirate Roberts, or DPR, and operated Silk Road from January 2011 until last month. Ulbricht handled the routine personnel matters faced by any small-business man, according to electronic communications reviewed by federal agents. And he availed himself of some of the services his site facilitated. He contracted with one of the site’s users to kill another user, according to the complaint.
Separately, Ulbricht was indicted in federal court in Baltimore for allegedly trying to arrange the murder of one of his employees who he feared might be a witness against him.
The FBI, which tracked Ulbricht down using online gumshoe methods to thwart his Internet crimes, views him as the John Gotti of cybercrime, referring to the late New York organized crime boss.
The allegations underscore the difficulty of patrolling the Internet for crime. Ulbricht allegedly used a hidden computer network that shielded users from law enforcement on servers run by unwitting third parties around the globe. Ulbricht rented the equipment using fake identification documents, prosecutors said. These arrangements, with the requirement that users pay in the Bitcoins, added to the anonymity of the transactions, as did users’ fake identities and encrypted messages.
Federal agents seized Bitcoins worth $3.6 million from accounts at the site, according to Julie Bolcer, a spokeswoman for Manhattan U.S. Attorney Preet Bharara.
The seizure came days after New York’s top banking regulator called for transparency in who makes trades in the nascent Bitcoin industry.
“Virtual currencies may ultimately turn out to be a very big thing that people want to use,” Benjamin Lawsky, superintendent of New York’s Department of Financial Services said in an interview. “Right now, it feels as if the major advantage they’re providing is anonymity. We’ve learned over the years that if you see huge international transactions over the Internet, anonymous, it can often become a haven for money launderers, terrorists.”
The value of Bitcoin currency listed on the Bitstamp Ltd. exchange fell as much as 33 percent yesterday on news of the charges. Bitcoin prices had been unstable for months, dropping by more than 70 percent in the spring, to about $60.
Since being introduced four years ago by a programmer or group of programmers going under the name of Satoshi Nakamoto, Bitcoin has become popular way to pay for goods and services on the Internet, with 11.8 million Bitcoins in circulation, according to Bitcoincharts, a website that tracks the digital currency’s activity.
Ulbricht’s business, which prosecutors called “a sprawling black-market bazaar,” had almost 13,000 listings in late September for illegal drugs. They included categories for 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 obtain 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 evade drug-detection dogs and machines.
“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 filed Sept. 30 in federal court in Manhattan and unsealed yesterday.
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.
He 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.
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.
Beginning in November 2011, undercover agents seeking to make a case against Ulbricht made more than 100 drug purchases, including ecstasy, cocaine, heroin and LSD, from Silk Road vendors. They also found evidence of more serious criminal conduct involving talk of murder.
In March, a Silk Road vendor known as FriendlyChemist told Ulbricht 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. Prosecutors said FriendlyChemist threatened to publish the information unless Ulbricht paid him $500,000. He said he needed to pay off his drug suppliers, according to the complaint.
Using his pirate code name, Ulbricht corresponded with a Silk Road user called redandwhite, who said he represented the people owed money by FriendlyChemist.
“In my eyes, FriendlyChemist is a liability and I wouldn’t mind if he was executed,” Ulbricht said on March 27, according to the complaint. He provided FriendlyChemist’s name and address in White Rock, British Columbia, noting “Wife +3 kids.” Ulbricht 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 that Ulbricht, as Dread Pirate Roberts, had passed on to redandwhite nor any record of a homicide in White Rock at the time. Ulbricht wasn’t charged in that alleged murder-for-hire scheme.
Yesterday, Ulbricht was charged in federal court in Manhattan with narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy. If convicted, he may face life in prison. He made an initial appearance in a five-minute proceeding yesterday 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.
Murder for Hire
Separately, Ulbricht was accused in the indictment in Baltimore of trying to have one of his administrators killed to prevent him from talking to police. In January, Ulbricht communicated with an undercover federal agent who posed as a drug trafficker, saying the employee, who wasn’t identified in the indictment unsealed yesterday, had stolen money from Silk Road users and had been arrested.
“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.”
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). The Maryland case is U.S. v. Ulbricht, 13-00222, U.S. District Court, District of Maryland (Baltimore).
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