
Two Federal Agents in Silk Road Case Face Fraud Charges - TwoFactor
http://www.nytimes.com/2015/03/31/nyregion/silk-road-case-federal-agents-charges.html
======
CPLX
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...](http://www.justice.gov/sites/default/files/opa/press-
releases/attachments/2015/03/30/criminal_complaint_force.pdf)

~~~
modeless
> 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?

~~~
gwern
> 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...](https://www.reddit.com/r/DarkNetMarkets/comments/2tgymg/silk_goxed_how_dpr_used_mtgox_for_hedging_lost_big/)

------
mherdeg
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...](http://www.aarongreenspan.com/writing/20141022/the-common-sense-
approach-to-offsetting-money-transmission-risk/) , 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
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...](http://www.aarongreenspan.com/writing/20131118.hsgacstatement.pdf)

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

------
deftnerd
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.

~~~
fweespeech
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.

~~~
fiatmoney
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...](http://www.abajournal.com/news/article/epidemic_of_brady_violations_decried_in_kozinski_opinion)

~~~
tptacek
Is there some link you can point us to suggesting that that's happened in this
case? There are 113,000 employees at DOJ, so, statistically, every case is
always going to be one or two hops away from some kind of malfeasance
somewhere, right?

~~~
fiatmoney
If the complaint is "the DOJ routinely hides evidence and engages in corrupt
behavior", it isn't exactly a counterargument to say "but you're always near
some corruption at the DOJ, and besides, the DOJ hasn't released any evidence
that they're not to be trusted".

It is entirely likely, a priori, that there will be abuses in a system where
violations of the law are, to a close approximation, unpunished, it is to
their great professional benefit to violate the law, and it is to their great
professional benefit to ignore violations of the law by their coworkers.
Nothing in this indictment makes me revise that opinion downwards.

Besides which, these agents in particular have a pattern (according to the
indictment) of initiating investigations against targets who had become
obstacles to their corruption.

~~~
tptacek
There are over 100,000 employees at DOJ, and it would be an extraordinary
claim to suggest that enough of them are corrupt to make this kind of
corruption routine. It might be true, but extraordinary claims require
extraordinary evidence.

Note that because of selection bias, links to Brady stories probably don't
constitute "extraordinary" evidence.

------
drzaiusapelord
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
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.

~~~
jessaustin
_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.

------
edward
[http://www.justice.gov/sites/default/files/opa/press-
release...](http://www.justice.gov/sites/default/files/opa/press-
releases/attachments/2015/03/30/criminal_complaint_force.pdf)

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

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

~~~
gwern
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.

~~~
ipsin
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.

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

------
granfalloon
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](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.

------
fiatmoney
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.

~~~
CPLX
Read the complaint, it's so much worse than that:
[http://www.justice.gov/sites/default/files/opa/press-
release...](http://www.justice.gov/sites/default/files/opa/press-
releases/attachments/2015/03/30/criminal_complaint_force.pdf)

------
lenlorijn
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
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).

------
JupiterMoon
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).

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

~~~
justathrow2k
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_parade
When the Senate declared we torture people and the president decided not to
prosecute.

~~~
justathrow2k
Well, there's your answer.

