FBI shuts alleged online drug marketplace, Silk Road

The Federal Bureau of Investigation said Wednesday it arrested Silk Road owner, Ross William Ulbricht, 29, known online as "Dread Pirate Roberts," in San Francisco on Tuesday, according to court filings.

Ulbricht, who holds an advanced degree in chemical engineering, appeared in federal court on Wednesday and a bail hearing was set for Friday.

His lawyer Brandon LeBlanc, a public defender, declined to comment.

Federal prosecutors in New York charged Ulbricht with one count each of narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy, the filing said.

"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 site was used by "several thousand drug dealers" to sell "hundreds of kilograms of illegal drugs," he said.

The site, which has operated since early 2011, also offered tutorials on hacking ATM machines, contact lists for black market connections and counterfeiters, and guns and hit men for sale, according to the charges.

More than 900,000 registered users of the site bought and sold drugs using the digital currency Bitcoin. In recent media reports about the growing popularity of Bitcoin, the Silk Road website has emerged as part of a darker side to the use of digital currencies.

Through the site, according to the 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.

According to the complaint, Ulbricht, who shortened his alias from Dread Pirate Roberts to DPR when posting on Silk Road's forums, operated the site from San Francisco.

At times, he used computers at Internet cafes to access the servers running the website, which employed several technological tools to mask the location of its servers and the identities of its administrators and users.

The complaint described other aspects of Ulbricht's online presence: In a Google+ profile, he 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."

The complaint against Ulbricht describes a darker side. During one correspondence with a Silk Road user, Ulbricht tried to call out a hit on another user with whom he had a dispute. That user, known online as "FriendlyChemist," was threatening to expose the identities of thousands of Silk Road users unless Ulbricht sent him money.

"I wouldn't mind if he was executed," Ulbricht wrote, offering personal details about his foe, including the fact that he was a married father of three, and the names of the city and province where he lived.

In a later post, Ulbricht wrote: "He is threatening to expose the identities of thousands of my clients."

"This kind of behavior is unforgivable to me. Especially here on Silk Road, anonymity is sacrosanct."

During the raid, authorities seized $3.6 million worth of bitcoin, which was used instead of cash or credit cards to complete transactions on Silk Road.

The charges against Ulbricht said his website generated sales of more than 9.5 million bitcoin, roughly equivalent to $1.2 billion.

Authorities seized the currency by taking control of the digital "wallets" Silk Road used to store bitcoin.

In a corresponding civil asset forfeiture action, prosecutors claimed Silk Road and Ulbricht were liable to the government for the value of all transactions involving drug tracking and computer hacking, as well as for money laundering penalties, and a final amount would be determined at trial.

The raid on Wednesday was not the first time the U.S. government has made arrests related to Silk Road.

Earlier this year, authorities in South Carolina arrested Eric Daniel Hughes, known on Silk Road as "Casey Jones," and charged him in state court with drug possession. The Drug Enforcement Agency seized units of bitcoin, which Hughes allegedly used to purchase drugs from the online market.

Bitcoin, which has been around since 2008, first came under scrutiny by law enforcement officials in mid-2011 after media reports surfaced linking the digital currency to Silk Road.

(Additional reporting by Daniel Levine in San Francisco; Editing by Jeffrey Benkoe and Bernadette Baum)