Two Federal Agents in Silk Road Case Face Fraud Charges

http://www.nytimes.com/2015/03/31/nyregion/silk-road-case-federal-agents-charges.html

by TwoFactor • 11 years ago

287 86 11 years ago

ipsin3• 11 years ago

It will be interesting to see how they allegedly got the bitcoins, since I expect that will come out in the indictment and trial.

Phlarp2• 11 years ago

Perhaps they pretended to be an extortionist and a hitman in order to convince DPR to send coins to their address in exchange for a "hit" on the "extortionist".

gwern4• 11 years ago

The complaint already says how: after busting Chronicpain in a CD, he turned over his SR1 moderator/admin account, and then Force used the mod/admin ability to reset passwords & PINs to log into big vendors' accounts and transfer their balance out of SR1 to his own Bitcoin account.

ipsin3• 11 years ago

Thanks, I had missed any links to the indictment in the original story, but it's definitely a worthwhile read.

After knowing the background, I don't actually mind the redaction of those details from the evidence in Ulbricht's trial.

deftnerd• 11 years ago

I wonder if the government buried this until after the Ulbricht trial was over. The fact that two of the investigators were corrupt and stealing funds could have derailed the case.

ipsin3• 11 years ago

That hadn't even occurred to me. Is that something that prosecutors can even do? It seems legally and ethically suspect, but prosecutors seem to be unaccountable when it comes to that sort of tactic.

I can imagine the prosecutors pretending it's not material because it's an "ongoing investigation" (that's purposely paused until the trial finishes), but it would be very interesting to know the complete timeline and see how it meshes with that of the Ulbricht trial.

nateabele• 11 years ago

If the agents are convicted, you'd think Ulbricht's lawyer could appeal to have his conviction overturned...

emodendroket3• 11 years ago

What difference would it have made?

matart• 11 years ago

I would assume just media wise

vaadu• 11 years ago

Any evidence these 2 agents provided would be regarded as unreliable.

CPLX4• 11 years ago

It would cast a shadow of doubt over any and all evidence that these now discredited agents were involved in collecting and any testimony they made or influenced.

john_b• 11 years ago

IANAL, so hopefully someone more knowledgeable will chime in, but if you can show in court that a witness has comitted a crime you can show that they are not trustworthy and essentially impeach their testimony.

There was so much evidence against Ulbricht that it probably wouldn't have changed the outcome, but the fact that this is only now being brought to light is very suspicious.

pluma2• 11 years ago

Trials have to prove someone is guilty beyond reasonable doubt. If agents involved in the investigations were caught misbehaving, that may very well add doubt to the validity of the investigation's results. Or at least it could delay the trial while the results are re-evaluated.

higherpurpose• 11 years ago

Ulbricht can still appeal on this basis, no?

fweespeech4• 11 years ago

The Ulbricht case that went to trial was a different investigative team. [e.g. These agents were not involved]

The charges stem from the agents’ role in one of the federal investigations into Silk Road; a separate Manhattan-based investigation ultimately led to the filing of charges against the website’s founder, Ross W. Ulbricht, who was convicted last month on numerous counts. The website was also shut down by the authorities.
The Baltimore investigation resulted in an indictment of Mr. Ulbricht on a charge of murder for hire, but that case has remained pending and the evidence in support of it was kept out of the New York trial, apparently because of the investigation into the agents.

However, I'm pretty sure the "murder for hire" trial is going to die quietly because of these agents.

fiatmoney3• 11 years ago

Yes, it's unheard of for agents in a "different investigative team" (that, BTW, happens to be involved in shaking down suspects) to, say, provide illegally obtained evidence to their coworkers. The government is very strict about tracking the source of evidence so it can be turned over to the defense; otherwise it'd be a clear Brady violation. They could face as much as a light chastizement from a federal judge!

http://www.abajournal.com/news/article/epidemic_of_brady_vio...

ryan_j_naughton• 11 years ago

> [e.g. These agents were not involved]

i.e. not e.g.

tptacek5• 11 years ago

It turns out one of them was probably on Ulbricht's payroll:

http://www.wired.com/2015/03/dea-agent-charged-acting-paid-m...

toomuchtodo2• 11 years ago

Wow. How could Ulbricht's attorney not appeal after this is made public?

gwern4• 11 years ago

This was pretty deliberately buried, yes. I've been going through the evidence exhibits for the trial, and in retrospect, knowing what I know now, it's remarkable how carefully chosen exhibits are to hide all the traces on Ulbricht's end: for example, due to redaction failures, we know all the mentions of French Maid were scrubbed by prosecution; his journal is carefully chosen to start after Chronicpain was busted and used to rob SR1 accounts; the failed extortion attempt using the name 'A.A.' is partially redacted so it sounds like an isolated incident; and so on.

tedunangst4• 11 years ago

What do you mean by buried? I think it's fairly obvious why the prosecutor would choose not to present this evidence if the case could be made without it. The prosecution isn't required to present everything at trial.

I guess there's the question of whether the prosecution provided it to the defense or not, though I'm not sure how that would help. Ulbricht was sticking with the claim he wasn't running the site at the time, no? Seems irrelevant that some bad agents stole from the site he wasn't running.

drzaiusapelord• 11 years ago

Bitcoin seems to make everyone crazy. I guess if you're prone to theft and dishonesty, it must be tough to look at a folder on some confiscated PC with files worth tens or hundreds of thousands of dollars and not take them. Seems like everyday police corruption, like how drug dealers busted with thousands of dollars suddenly have a evidence locker inventory with zero cash.

I'm glad the system is working, at least to the point of catching these guys. You can't stop human nature, but at least you can punish the guilty.

rayiner• 11 years ago

I think it's a look into what he world looks like without social norms. The folks stealing bitcoins probably would never take $200 out of grandma's purse when she wasn't looking. Society has acculturated people to understand that's bad. But butcoin is novel, and doesn't have social norms surrounding it. It doesn't feel the same as taking money out of a purse.

geoelectric• 11 years ago

I would argue that many of the recently publicized actions of the government in general provide a look into what the world looks like without social norms.

secant• 11 years ago

As the guy above said, I don't think it's particularly novel about Bitcoin, rather that the temptation of something that has a large amount of value will always make a few give in. These guys may not have stolen from a grandma, but would feel less inhibited stealing from what they ostensibly view as criminal's money.

fixxer• 11 years ago

I think your theory might be a tad overly optimistic with regards to the character of these officers.

I think the amount of infrastructure they set up to execute the crime indicates complete understanding of the law. That is very different from committing a crime because one's adherence to social norms makes them think it isn't a "real crime".

jessaustin• 11 years ago

The folks stealing bitcoins probably would never take $200 out of grandma's purse...

You're probably right, and that would be great if agents primarily came into contact with grandmas and their purses. However, these individuals were employed to investigate successful criminal enterprises. It is very doubtful that this is the first time they've had an opportunity to steal from the wealthy target of a criminal investigation.

alphonse232• 11 years ago

Bitcoins make everything so tempting.

alphonse232• 11 years ago

Or maybe I should say, bitcoins make stealing so tempting -- at a personal level.

Maybe it's the mixing of these DIY technologies with money -- all these scams feel within reach -- just about anybody can easily steal money, where as in the non-digital world, stealing too hard...

Tomte• 11 years ago

Looks like we have indeed found a third way to make money off Bitcoin.

The first two, both widely used so far, are

(a) operating a Bitcoin exchange and running away with customers' Bitcoins and

(b) hacking a Bitcoin exchange and running away with customers' Bitcoins.

Phlarp2• 11 years ago

(c) investigating bitcoin related crimes for a federal agency and selling access to your investigation back to the target

r00fus• 11 years ago

Corruption is always a way to make money - it's a time honored tradition. What I'm afraid we're seeing here is that if the corrupt individuals aren't sufficiently capable, they get caught.

What is going on that isn't being caught (or just as bad, being caught but not being punished because "important people" would be inconvenienced)?

Mandatum• 11 years ago

It's not bitcoin, greed is rampant - pocketing cash is a lot easier than pocketing bitcoin. Bitcoin has traceability, and you would assume the average LEO wouldn't have a wealth of knowledge to steal and launder it without getting caught.

Cash on the other hand, they can take out of the brown paper bag, shove in their jacket and it's essentially theirs.

niche• 11 years ago

This is an excellent demonstration of the value and transparency the blockchain provides.

fiatmoney3• 11 years ago

Basically the same MO as in drug cases - part of the briefcase-o'-cash (or drugs, or what have you) goes into evidence, part goes into the agents' pockets.

CPLX4• 11 years ago

Read the complaint, it's so much worse than that: http://www.justice.gov/sites/default/files/opa/press-release...

edward• 11 years ago

http://www.justice.gov/sites/default/files/opa/press-release...

KhalilK• 11 years ago

What a terrific example of how Bitcoin's transparency is one of its greatest assets.

shit_parade2• 11 years ago

How many bad apples until people declare the whole batch spoiled?

chasing• 11 years ago

http://rationalwiki.org/wiki/Overgeneralization

justathrow2k2• 11 years ago

Well,it sounds like you've already made up your mind, so at what number did you reach the breaking point and made the decision that the entirety of our law enforcement system was spoiled?

shit_parade2• 11 years ago

When the Senate declared we torture people and the president decided not to prosecute.

tedunangst4• 11 years ago

It requires a sample of about 72 bad apples and 0 good apples to be 95% confident that at least 95% of the batch is spoiled.

peterwwillis• 11 years ago

Have you ever picked apples?

CPLX4• 11 years ago

I encourage everyone with interest in the overall story to actually read the complaint. It's astonishing.

It appears that these two Federal agents were doing far, far more than just grabbing some excess bitcoins that were lying around and they figured nobody would miss. It reads more like a purposeful organized crime effort, involving setting up dummy shell companies, forging letters from the government, being involved in pitching investments in shady offshore bitcoin startups, etc.

They also allege that these agents were turning around and selling insider info on the investigation to DPR in exchange for hundreds of thousands of dollars in bitcoin. They allege an agent just basically strong armed some random guy ("RP") who was a customer of CoinMKT and stole $297,000 or so from him, using the Federal Government search and seizure docs to do so but then just transferring the money into his personal checking account.

The agent was doing shady transactions via Venmo and got flagged and had his account suspended, so he contacted them as a DEA agent to get the account reinstated. When they got suspicious (because he had been using his personal email address before going "official") and contacted his supervisors he tried to start a criminal investigation of Venmo as "a suspicious money remitter" through his office.

They allege that the other agent was responsible for the wholesale theft of bitcoin from Silk Road and its various vendors, after they managed to apprehend someone ("CG") who was an administrator at Silk Road. This agent signed Federal warrants seizing the assets of Mt Gox, meanwhile transferring millions of dollars in bitcoin into his own account.

Reading this is thoroughly jaw-dropping: http://www.justice.gov/sites/default/files/opa/press-release...

CodeWriter23• 11 years ago

Indeed. It appears Force's fatal flaw was trusting an IRS Agent to help him out of a situation.

Zigurd• 11 years ago

Guess what his business he is in now.

modeless• 11 years ago

there is some implication that these agents may have been responsible for theft of bitcoin not only from Silk Road, but from Mt Gox as well

I don't think this is true. Unless I'm missing something the allegation here is not that they stole from Mt. Gox but that they used Mt. Gox to cash out bitcoins stolen from Silk Road.

They did actually then steal from Mt. Gox, but it was "legal". They accused Mt. Gox of operating illegally and seized their US bank accounts. That happened a long time before Mt. Gox actually collapsed and is separate from the bitcoin theft that brought them down.

This whole thing reads like a conspiracy theory dreamed up by radical libertarians. If they really are out to get you, does that mean you're not paranoid?

gwern4• 11 years ago

I don't think this is true. Unless I'm missing something the allegation here is not that they stole from Mt. Gox but that they used Mt. Gox to cash out bitcoins stolen from Silk Road.

The complaint does not accuse them of stealing from Mtgox. However, there is still the curious matter of how Ulbricht's Mtgox account was drained several months later: https://www.reddit.com/r/DarkNetMarkets/comments/2tgymg/silk...

legalbeagle2• 11 years ago

The complaint does accuse the two agents of stealing directly from Silk Road during the "proffer" of DPR's employee, C.G. There is no accusation of stealing from Mt.Gox. They reportedly used Mt.Gox to convert stolen bitcoin to dollars and then wired out the dollars to other accounts).

user_0001• 11 years ago

Drug enforcement officers on the take shocker.

I though this was common knowledge. Arrest and find 2 lbs and $20k, person gets charged with 1 lb and $10k

zaroth• 11 years ago

The twist being, Bitcoin is so far from even pseudo-anonymous that stealing the cash would have been much, much smarter. The Blockchain, it turns out, is the least anonymous way to transact. All your ledger made public forever, what could possibly go wrong?

Sure, with perfectly clean CoinJoins, mixing, etc. you might possibly be able to hide the coins, for a little while. Just don't ever try to actually, you know, spend them.

legalbeagle2• 11 years ago

Interestingly, these guys weren't caught because they stole bitcoin. They were caught because they converted the bitcoin into US dollars and then ultimately transferred that cash into accounts subject to investigative jurisdiction in the U.S. Had they simply kept (and maybe even spent) the bitcoin directly, it would have been far harder to identify them.

CPLX4• 11 years ago

Not sure about that. It seems like they were caught because they were totally and utterly beyond flagrant in their abuse of their office. Reading through that complaint I saw at least a dozen examples of actions where I wondered "what the hell did they think was going to happen next" in regards. Using government subpoenas to intimidate payment processors, having their name associated with bitcoin startup pitches while still being on the US Government payroll, and engaging in literal extortion attempts against DPR which were discovered easily when his servers and computer were seized, were just a few of their greatest hits. These guys were on a fast road to discovery from various different directions, it's hard to comprehend what they were thinking their endgame would be.

bcn• 11 years ago

Here's a link to the the complaint: http://cryptome.org/2015/03/force-001.pdf

JupiterMoon• 11 years ago

So much for bitcoin being anonymous... (Yes I know it can be anonymous if one is careful but as it is commonly used it is not and this needs to be remembered).

mherdeg• 11 years ago

I have often thought that Aaron Greenspan's attitude towards California money transmission law was a little aggressive, http://www.aarongreenspan.com/writing/20141022/the-common-se... , like, this guy is ranting about obscure laws and there is no way that the government would really abuse this legislation to shut down reasonable businesses.

Then, in this complaint, I read

""On March 4, 2014, FORCE asked one of his co-case agents on the Baltimore Silk Road Task Force to run a query in a law enforcement database for Venmo, saying that he wanted to collaborate 'on a suspicious money remitter, Venmo Inc. Venmo has since registered with FinCEN, but I want to know if they have state money license remitting licenses in California and New York. Can you check? If not, I want to seize their bank accounts (need to identify them) a la BRIDGES and [M.M.'s] seizure warrants for Mt. Gox.""

Wow. Nope. Aaron Greenspan is exactly right about the effects of this legislative mess.

thinkcomp• 11 years ago

Thanks. Glad someone noticed, though aggressive overuse of 18 U.S.C. § 1960 at the federal level is hardly the biggest problem... See page 15:

http://www.aarongreenspan.com/writing/20131118.hsgacstatemen...

The real issues are at the state level, but as you can see, it's all intertwined.

granfalloon• 11 years ago

Now that blockchain analysis tools are getting better, I wonder if we'll be seeing more and more criminal activity exposed.

For example, someone linked to this wallet/transaction in a reddit thread, which appears to show one of the $100k payoffs: http://www.walletexplorer.com/wallet/08363b86122e340c

Even just six months ago it would have been hard piece that information together, but Wallet Explorer makes it clear as day.

lenlorijn• 11 years ago

So we're just going to ignore the rather awesome fact that there was "Special Agent Force" who was reckless and didn't abide by the rules, but got the criminals in the end? It sounds like a graphic novel or something.

wavefunction• 11 years ago

He is a criminal himself, the worst kind: an official abusing their civil authority to enrich themselves and commit their crimes against many innocent people (Ulbricht not being one of those).

Two Federal Agents in Silk Road Case Face Fraud Charges

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