Fireworks in Silk Road trial as defense implicates Mt. Gox CEO, who denies involvement

By Michael Carney , written on January 16, 2015

From The News Desk

The now three-day-old trial against accused Silk Road mastermind Ross Ulbricht began to resemble a Hollywood thriller yesterday as Department of Homeland Security Special Agent Jared Deryeghiayan took the witness stand and revealed that the government strongly suspected former Mt. Gox CEO Mark Karpeles of being the original mastermind behind the Dark Web marketplace, aka “Dread Pirate Roberts” (DPR). 

It was a development that Ulbricht’s defense attorney, Joshua Dratel, hinted at in his opening statement, saying, "We have the name of the real mastermind and it's not Ulbricht." 

For those keeping score at home, if Karpeles was both the CEO of the world’s largest bitcoin exchange – which went bankrupt in early 2014 based on hundreds of millions of dollars in missing assets – and the proprietor of its most prolific online marketplace, that would mean he had even more control over the price and liquidity of bitcoin than previously suspected. At its peak, Silk Road had more than 900,000 users and transacted more than $1 billion in annual sales. 

If Karpeles involvement in Silk Road proves to be true, it would also mean that he was a far more sophisticated and ambitious criminal mastermind than any have given him credit for to this point. In bitcoin message boards, Karpeles, who goes by the internet handle MagicalTux, has taken on the meme of a schlubby and incompetent loser, but certainly not that of an evil genius.

During cross examination, Deryeghiayan read his own investigation notes from 2012 which stated, "I have a wealth of evidence to prove that [Karpeles] is Dread Pirate Roberts.” He later explained his theory as to the connection between Silk Road and Mt. Gox, saying “"[Silk Road] would be a device for leveraging the value of Bitcoin, and if he could create a site independent of Bitcoin, you could control the value of Bitcoin.”

When the prosecution objected to the defense’s line of questioning pertaining to Karpeles, the judge responded: 

[The defense is] trying to raise reasonable doubt that the defendant is the real DPR. How else would you do it? ... The defense has been building a picture all afternoon that Karpeles was Dread Pirate Roberts or a Dread Pirate Roberts. That has come out in spades, that that is their argument. That cat is out of the bag. 
Deryeghiayan later explained that while he strongly believed Karpeles was DPR in the early stages of his investigation, he now believes that was an incorrect conclusion and that Ulbricht is in fact responsible for Silk Road. As for what his “wealth of evidence” connecting Karpeles to Silk Road includes, we’ll have to wait until the trial resumes to find out. One bit of evidence that we do know is that Karpeles was listed as the registrant for domain for, a publicly accessible website offering a simple tutorial on downloading the Tor browser to visit the otherwise hidden Silk Road marketplace. 

One interesting question that arrises out in a world where Karpeles is in fact behind both Mt. Gox and Silk Road – which remains an unconfirmed theory at this point – is what should the government do with the bitcoin assets seized from the latter? The US Marshals have already auctioned 80,000 bitcoins seized from Silk Road and have plans to conduct additional auctions of this type in the future. With Mt. Gox depositors missing more than 650,000 bitcoins following the exchange’s hack, it’s worth asking if these assets are in any way connected, and if they should be frozen until their origin can be accurately established.

Karpeles has since publicly denied his involvement in operating Silk Road, first via Twitter and later in a more lengthy public statement sent to Motherboard:

— Mark Karpeles (@MagicalTux) January 16, 2015


This is probably going to be disappointing for you, but I am not Dread Pirate Roberts. The investigation reached that conclusion already - this is why I am not the one sitting during the Silk Road trial, and I can only feel defense attorney Joshua Dratel trying everything he can to point the attention away from his client.

I have nothing to do with Silk Road and do not condone what has been happening there. I believe Bitcoin (and its underlying technology) is not meant to help people evade the law, but to improve everyone's way of life by offering never thought before possibilities.

As for the domain, it was registered by a customer and paid in Bitcoins (KalyHost is a service of Tibanne that has been up since 2009). With the Ulbricht trial expected to last approximately one month, we are in the very early stages of this spectacle. If there are this many fireworks in day three, expect things to get really wild before all’s said and done.

[Image via Giphy]