Feds Take Wind Out of Dread Pirate Roberts' Sails

In The Princess Bride, it was a shock when Princess Buttercup worked out that the Dread Pirate Roberts was actually Wesley, the innocuous stable hand. Now it turns out that the man allegedly behind one of the Internet's biggest online illegal drug markets – screen name Dread Pirate Roberts – is some guy from West Lake Hills.

Yesterday, the FBI issued a complaint against Ross William Ulbricht, a 29-year-old Austin native, alleging that he ran the Silk Road, one of the Internet's biggest black markets for criminal enterprises. Ulbricht attended Westridge Middle School in Eanes ISD before graduating from UT Dallas. According to an interview he did for NPR's StoryCorps project, Ulbricht moved to San Francisco to work at a start-up with his long-time friend Rene Pinell. In that conversation, Ulbricht touches on Libertarian talking points about global government: He is also a proponent of the Libertarian philosophies of Austrian free marketeer Ludwig von Mises and a supporter of Ron Paul's 2008 presidential campaign. Arguably, his latest criminal endeavor was their free market philosophies taken to the furthest possible extremes.

In the complaint, Ulbricht is charged with one count of conspiracy to traffic narcotics, one count of hacking conspiracy, and one count of conspiracy to launder money. There's now a second indictment, out of Maryland, adding hiring a hitman to the pile.

In the original complaint, the FBI alleges that Ulbricht, aka Dread Pirate Roberts, aka DPR, ran the website Silk Road. The name was taken from the old overland trading routes between China and Europe. However, he wasn't helping trade silk and tea. The Silk Road was a trading place for illegal activities, and the FBI estimates that, in since its founding on or around June 18, 2011, it "has been used by several thousand drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other illicit goods and services to well over a hundred thousand buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions." In total, they estimate that it had hosted roughly $1.2 billion in sales, and creamed $80 million in commission.

The process isn't complicated. According to the complaint, Ulbricht set up Silk Road on The Onion Router (TOR), a network on the Internet designed to make it basically impossible to track the physical location or virtual identity of a user. As the complaint states, "Although TOR has legitimate uses, it also is known to be used by cybercriminals seeking to anonymize their online activity."

The FBI complaint alleges that Ulbricht was not only the brains behind the site, but also its system administrator and chief programmer, and deliberately designed it to be more amenable to criminals when he created the user category of "superstar vendor." Through a stealth mode, he could offer extra protection to users who were at "risk of becoming a target of law enforcement."

Ulbricht wasn't doing this out of the kindness of his heart. Silk Road ran on bitcoins, the virtual (and virtually unregulated) currency of the Internet. When the Feds busted him and seized his own Bitcoin account, he had the equivalent of $3.4 million in it, which they claim came from commissions on criminal sales. In fact, according to the Daily Dot, Ulbricht's big slip-up was that, when he was setting up the site, he used his easily trackable gmail account to try to hire a bitcoin expert.

Aside from drugs, the FBI alleges that vendors on Silk Road offered everything from hacking tools to stolen bank account info and hitmen.

This is where it starts to get really awkward for Ulbricht. In the complaint from Maryland, Ulbricht is alleged to have hired a Silk Road user to kill a former employee of the site who had been arrested. Fearful that he might start giving up information to law enforcement, Ulbricht paid the user $40,000 to kill his former employee. Unfortunately for Ulbricht, the user was actually an undercover agent, and the feds simply sent him a faked photo of the crime scene, then claimed they had destroyed the body.

This may not have a been a one-off. The FBI complaint alleges that Ulbricht was prepared to use "violent acts" to run his operation. That includes, around March 29 of this year, that he "solicited a Silk Road user to execute a murder-for-hire of another Silk Road user." They claim that he solicited one user, screen name redandwhite, to murder another user, a Canadian nicknamed FriendlyChemist, after FC threatened to publish the names and addresses of 5,000 Silk Road users and 12 vendors that he had hacked from another drug dealer's site. In later exchanges, redandwhite claimed that the hit had been carried out, although Canadian authorities could not verify that it happened.

In an interesting aside, redandwhite was paid roughly $150,000 in bitcoins for the hit, after initially asking for up to $300,000. Ulbricht balked at the higher price, saying that "not long ago, I had a clean hit done for $80k."

In an interesting coda all to that, on his Linkedin profile, Ulibricht claimed that "I believe violence, coercion and all forms of force by one person over another can come to an end."

There's a certain black comedy in the fact that this is all happening during the Tea Party-inspired government shutdown. That means that the FBI has so far been unable to post news of this major arrest on www.fbi.gov. As the site notes, "Due to the lapse in government funding, information on this website not directly related to the protection of life and property will not be routinely updated. Inquiries not related to investigations and threat information may not receive a response until funding has been restored."

However, the FBI is undoubtedly stepping up its Internet division. Not only is October National Cyber Security Month, but last week the FBI and the state of Utah launched a new information sharing and investigation coordination model to crack down on Internet fraud.