Ex-Mt Gox CEO investigated as Silk Road mastermind

2015-01-19 07:18
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New York - A US agent investigating Silk Road told jurors at a trial of accused operator Ross Ulbricht that he came to believe the former chief of the Mt Gox bitcoin exchange, Mark Karpeles, might have been the mastermind behind the black market website.

Jared Der-Yeghiayan, a US Department of Homeland Security special agent, testified on Thursday in Manhattan federal court that as late as August 2013 he believed that Karpeles, Mt Gox's chief executive officer, actually controlled the website, where drugs and illicit goods could be bought anonymously.

Under questioning by Ulbricht's lawyer, Der-Yeghiayan said that as part of a search warrant for Karpeles' Google e-mail account he had said there was probable cause to believe he controlled Silk Road.

Ulbricht's lawyer, Joshua Dratel, sought to cast doubt over whether Ulbricht was Silk Road's operator, known as "Dread Pirate Roberts", as prosecutors allege.

Dratel in opening statements on Tuesday said that while Ulbricht created Silk Road, he handed it off to others and became their "fall guy". His questions on Thursday indicated he was seeking to show Karpeles may have run Silk Road.

"Our position is he set up Mr Ulbricht," Dratel said outside jurors' presence.

Unlicensed money transfers

Karpeles was never charged. His lawyers did not respond to requests for comment.

Silk Road, which took payment in bitcoin, operated from 2011 to October 2013, generating $200m in drug sales, prosecutors say.

Ulbricht, 30, faces seven counts including operating a continuing criminal enterprise and conspiracy to commit narcotics trafficking.

The investigation of Karpeles was separate from the events leading to the hacking attack on Tokyo-based Mt Gox in 2014 that led to its filing for bankruptcy.

Der-Yeghiayan said that at the time he was investigating Karpeles, investigators theorised Silk Road was operated in part to drive bitcoin prices up.

The August 2013 search warrant followed earlier grand jury subpoenas and another search warrant that Der-Yeghiayan said were issued targeting companies linked to Karpeles as part of the Silk Road probe.

But in July 2013, Der-Yeghiayan, who worked in Chicago, testified that over his objections, federal prosecutors in Baltimore met with Karpeles as part of an investigation over unlicensed money transfers.

Exact details of the meeting were unclear and are expected to be part of Der-Yeghiayan's testimony when trial resumes on Tuesday.

Dratel sought to elicit testimony that Karpeles had offered to "tell the government who he thought runs Silk Road" to avoid charges.

Read more about: e-commerce  |  cybercrime

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