An undercover federal agent in Maryland played a key role in the shutdown Wednesday of what authorities describe as a massive online drug marketplace called the Silk Road, whose owner allegedly began scheming to kill perceived rivals.
Authorities say Ross William Ulbricht, a 29-year-old San Francisco engineer with a physics degree, built his site into the Amazon of illegal narcotics. He is accused of serving “several thousand drug dealers” since January 2011, with sales exceeding $1 billion and transactions occurring with a virtual currency called Bitcoin.
The site also offered tutorials on hacking ATM machines, contact lists for black market connections, and guns and hit men for hire, according to the charges.
“Silk Road has emerged as the most sophisticated and extensive criminal marketplace on the Internet today,” FBI agent Christopher Tarbell said in the criminal complaint.
The target of parallel but separate federal investigations, Ulbricht was charged by a grand jury in Maryland with conspiracy to distribute a controlled substance, and attempted witness murder, among other charges. The indictment was unsealed Wednesday as related charges in New York became public.
Court documents in the two cases lay out how authorities believe Ulbricht became increasingly comfortable targeting for violence those who he believed could bring down the complex and lucrative online network he had built.
Ulbricht’s family in Texas said he was a “good person,” who would not hurt anyone. He briefly appeared in a San Francisco courtroom Wednesday and was being detained; an attorney assigned to his case declined to comment.
His indictment by a Maryland grand jury stems from his alleged interactions starting in April 2012 with an undercover agent here. The agent told Ulrich that he was a high-level drug smuggler who wanted to move inventory on Silk Road, court documents say.
Their chats took a turn when one of Ulbricht's employees got arrested in January after one of their arranged transactions. Authorities say Ulbricht worried that the employee would blow his cover and asked the undercover agent to have him killed.
Ulbricht said he had “never killed a man or had one killed before, but it is the right move in this case,” an agent wrote in court papers.
The agent led Ulbricht to believe that the killing had been carried out, including sending staged photos of the employee being tortured, and on March 1 Ulbricht wired $80,000 from an account in Australia to an account controlled by authorities.
The series of events emboldened Ulbricht, according to separate documents filed in the U.S. District Court for the Southern District of New York. Later in March, according to private messages reviewed by federal agents, a Silk Road vendor threatened to blackmail Ulbricht by exposing information about the site's users and transactions.
Ulbricht then reached out to a user to take care of the problem, according to court records.
“I would like to put a bounty on his head if it's not too much trouble for you,” he wrote in a message on March 29, authorities say in court documents. “Necessities like this do happen from time to time for a person in my position.” In bartering with the user, Ulbricht wrote: “Not long ago, I had a clean hit done for $80k. Are the prices you quoted the best you can do?”
On April 1, the user told Ulbricht that his problem had been “taken care of” and sent a picture of the victim, records show.
It's not clear whether such a killing occurred — agents wrote that they could find no record of someone with the name of the victim that was exchanged. They said they also contacted authorities in White Rock, British Columbia about whether a homicide had been committed on March 31.
More than 900,000 registered users of the site bought and sold drugs using the digital currency Bitcoin, according to court records.
Federal authorities said they had seized about $3.6 million worth of Bitcoin, which they said is the largest seizure ever of the virtual currency. Bitcoin can be obtained through online exchanges and is used to buy games and virtual products from Internet merchants, and in some instances to reportedly move money for illicit purposes.
The site was accessible only through a special network of computers designed to conceal IP addresses, and investigators said it is “practically impossible” to trace communications back to their original addresses.
Through the site, according to the federal charges, users could buy drugs and have them shipped to an address. Investigators, posing as regular users on Silk Road, made more than 100 purchases of drugs, which were shipped to the New York area.
At times, he used computers at Internet cafes to access the website, which employed several technological tools to mask the location of its servers and the identities of its administrators and users.
Agents in New York said they determined Ulbricht’s identity in part by tracing the origins of the site to discussions on message boards and a site created on the Wordpress blogging platform, leading to his Gmail address.
On the site, Ulbricht was known as “Dread Pirate Roberts,” a reference to the movie “The Princess Bride.”
The complaint described other aspects of Ulbricht's online presence: In a Google+ profile, the Pennsylvania State University graduate described himself as a fan of libertarian economic philosophy and posted videos from the Ludwig von Mises Institute, an Auburn, Alabama-based economics institute.
Reached by phone in Austin, Texas, Ubricht's parents said they had not known what their son was doing in San Francisco.
“He is a really stellar, good person and very idealistic,” said Ulbricht's mother, Lyn Lacava. “I know he never meant to hurt anyone.”
Ulbricht's father Kirk confirmed his son had received a master's in material sciences from Pennsylvania State University. His thesis was titled: “Growth of EuO Thin Films by Molecular Beam Epitaxy.”
“He did amazing research on crystals and exotic materials they hoped would have some use for humans,” Ulbricht said. “But it was very theoretical stuff.”
Federal prosecutors have previously waded into the Bitcoin market. This spring, federal agents in Maryland filed court papers to take assets held by Mt. Gox, a major Japanese BitCoin exchanger, alleging that the company had not properly registered with U.S. regulators.
Mt. Gox lets users turn dollars or other currencies into virtual BitCoins and back again. Authorities have seized $2 million from Mt. Gox’s American bank accounts and another $3 million from an account with an Iowa-based payment processing company, according to court records.
Baltimore Sun reporter Ian Duncan and Reuters contributed to this article.