Silk Road Alleged Mastermind Ulbricht Faces New U.S. Charges

Aug 22, 2014 4:45 pm ET

(Updates with lawyer’s comment in fifth paragraph.)

Aug. 22 (Bloomberg) -- The man accused of running the $1.2 billion online “black-market bazaar” known as Silk Road faces three new charges including trafficking in phony identification.

Ross William Ulbricht, accused of operating the marketplace where customers used bitcoins for anonymity, was also charged with Internet drug trafficking in a revised indictment yesterday in Manhattan federal court. Silk Road was shut down by federal authorities last year.

“Ulbricht reaped commissions worth tens of millions of dollars generated from the illicit sales conducted through the site,” prosecutors said in the indictment. Ulbricht also attempted to pay for the murder of “several individuals he believed posed a threat to that enterprise,” the U.S. said.

Ulbricht, an Eagle Scout who earned an advanced degree in physics from Penn State University before abandoning academia to pursue a career in finance, was first charged in 2013 with running an illicit online market and is scheduled for trial Nov. 3. Other charges include conspiracy to commit computer hacking and money laundering.

The new charges “demonstrate the government’s penchant for converting a single alleged course of conduct into a set of multiple similar, interchangeable charges in an effort to improve its chances of having a jury, overwhelmed by the sheer number of charges, agree with the government on at least one,” Ulbricht’s lawyer, Joshua Dratel, said in an e-mail.

Ulbricht pleaded not guilty in February and has denied the allegations.

Dread Pirate

Anonymous Silk Road customers, including thousands of drug dealers, used bitcoin digital currency to buy heroin, LSD, phony passports and computer-hacking services, the U.S. said. The site was shut down by federal authorities in October and its alleged mastermind arrested.

Ulbricht, who the U.S. said ran Silk Road starting in January 2011, was known as “Dread Pirate Roberts” or “DPR,” after a character in the 1987 film “The Princess Bride.” Prosecutors said he operated “the most sophisticated and extensive criminal marketplace on the Internet.”

Ulbricht was also indicted in federal court in Maryland for allegedly trying to arrange the murder of an employee. He also denied those allegations.

Three alleged former employees, Andrew Michael Jones, Gary Davis and Peter Phillip Nash, were charged in a federal indictment unsealed in New York in December.

Federal agents seized about 174,000 bitcoins, valued at the time at more than $33.6 million, in connection with the Silk Road case. Ulbricht was arrested about the same time in San Francisco. Bitcoins currently trade at about $525 per coin, according to Bloomberg data.

Illegal Transactions

“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 court filings after his arrest.

Charlie Shrem, the former Bitcoin Foundation Inc. vice chairman, in April pleaded not guilty to charges that he tried to launder more than $1 million in the virtual currency in a case tied to Silk Road.

Last month, venture capitalist Tim Draper was the single winning bidder for a cache of 29,656 bitcoins at a U.S. government auction of the currency seized during the Silk Road investigation.

The criminal case is U.S. v. Ulbricht, 14-cr-068; the civil forfeiture case is U.S. v. Ulbricht, 13-cv-06919, U.S. District Court, Southern District of New York (Manhattan).

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