Two lead US government agents in Silk Road investigation arrested for allegedly stealing over $1 million of Bitcoin from Silk Road during the investigation
Two former government agents involved in the Silk Road murder and extortion investigations in Baltimore, Carl Force and Shaun Bridges, were arrested and charged with corruption, money laundering, wire fraud and theft yesterday in California for allegedly stealing over $1 million worth of Bitcoin during the Silk Road investigation, one of whom allegedly transferred the proceeds to a tax haven.
Silk Road was a website accessible only on the TOR network that sold illicit goods and services including weapons, drugs, prostitution services, fake IDs and on occasion, services for hit men. The TOR network is a network on the Internet in which IP addresses are concealed though a router.
Many of the users of Silk Road were transnational criminal organizations. According to affidavit evidence from the US government, the Hells Angels based in Vancouver used Silk Road.
Silk Road was founded and operated by Ross Ulbricht, who was convicted of drug conspiracy and money laundering in New York on February 4, 2015. Ulbricht was also charged by the District of Maryland with conspiring to murder several people some of whom lived allegedly in Vancouver. The hit man in the Vancouver murder-for-hire scheme was allegedly a Hells Angel.
Carl Force had been a DEA agent for 15 years, and the lead undercover agent in communication with Ulbricht. Bridges had been a US Secret Service agent for six years and was the computer forensics expert on the Baltimore Silk Road investigation. Both were apparently Bitcoin experts, but obviously not sufficiently expert on the Blockchain.
According to the affidavit filed in support of the Criminal Complaint, Force allegedly:
- Ran illegal criminal history checks for private enterprise, including a Bitcoin exchange company called CoinMTR, for a secret payment of $110,000 paid in Bitcoin.
- Acted as Advisor to CoinMTR to enable the company to solicit funds from venture capital firms.
- Directed CoinMTR to illegally seize and transfer $297,000 worth of Bitcoin belonging to another person to his Bitcoin wallet.
- Fabricated a US Department of Justice subpoena and sent it to a payments firm, PayPal’s Venmo subsidiary, ordering that they release funds Venmo had frozen that were held in his name.
- Attempted to get Ulbricht to pay him $250,000 if he did not fully complete his investigation and withheld evidence from the US government in respect of its investigation.
- Sold information to Ulbricht about the Silk Road investigation for $100,000 worth of Bitcoin.
- Took a large number of Bitcoin from Silk Road during the investigation and transferred it to his own Bitcoin wallet, including a transfer of $235,000 in cashed-out Bitcoin wallet to Panama.
- Although his annual salary was $150,000, during the Silk Road investigation, he had unexplained income of $757,000.
- Instructed Ulbricht to encrypt his communications so that his own investigation team could not access them and they could not be used as evidence in a court proceeding.
- Informed Ulbricht that the US Secret Service had spoken to Mark Karpeles, the owner of Mt. Gox, to identify the owner of Silk Road.
- Was hired by Ulbricht as a hit man to kill the administrator of Silk Road who was cooperating with law enforcement in the Silk Road investigation.
Bridges allegedly stole $820,000 worth of Bitcoin from Silk Road, cashed it out through Mt. Gox, and transferred the funds to an account held at Fidelity that had been opened under a beneficial ownership structure.
Bridges was apparently both a TOR and Bitcoin expert on the Silk Road investigation in Baltimore, although according to the Criminal Complaint, he did not know how Bitcoin transactions could be traced from currency exchanges such as Mt. Gox, and in early 2015, he asked another company to educate him on that issue.
According to the Criminal Complaint, in April of 2014, the General Counsel of a Bitcoin exchange allegedly called Bridges by telephone to alert him in advance that they were filing a SAR on him, subsequent to which Bridges resigned. Under 31 U.S.C. 5318(g)(2)), it is illegal to alert or inform a person that a SAR has been filed but it is not clear whether it is equally prohibited to alert a person that a SAR will be filed against them.
The affidavit deposed in support of the Criminal Complaint by IRS digital currency special agent Tigran Gambaryan, is incredibly well-documented in respect of evidencing the movement of Bitcoin and funds through the Blockchain and international financial system for establishing the allegations of money laundering.