The defense in the trial of alleged Silk Road mastermind Ross Ulbricht suffered a setback Tuesday when the presiding judge ruled that key testimony delivered last week was inadmissible.
On Thursday, Department of Homeland Security agent Jared Der-Yeghiayan admitted on cross-examination that beginning in 2012 and until as late as August 2013 — less than two months prior to Ulbricht's arrest — he suspected that another man controlled the dark web marketplace. Before Ulbricht, the prime suspect in the case was Mark Karpeles, a French national based in Japan who formerly ran Mt. Gox, for a time the largest bitcoin exchange on the internet before it went belly-up early last year under dubious circumstances.
Der-Yeghiayan, encouraged by evidence that a site advertising Silk Road was registered to one of Karpeles' companies, believed Mt. Gox and Silk Road may have been run in tandem as a way for Karpeles to raise the price of bitcoins and boost his profits.
Der-Yeghiayan spoke for several minutes Thursday about his suspicions before prosecutors objected. Judge Katherine Forrest adjourned the court for the weekend before the complaints were resolved.
On Tuesday, Forrest chided the government for allowing the cross-examination to continue without objections but ruled nonetheless that the agent's "thoughts and beliefs are irrelevant," and that much of his recounting of the investigations into Karpeles was inadmissible as hearsay.
Included in that testimony was Chicago-based Der-Yeghiayan's reference to a parallel investigation in Baltimore, and his response to an August 2013 Forbes interview with a person who claimed to be the Dread Pirate Roberts, the handle used by Silk Road's administrator. Der-Yeghiayan said the person who gave the interview "sounds very much like Karpeles."
Last week, Der-Yeghiayan recounted learning that Karpeles' attorney had offered up the identity of the Dread Pirate Roberts to Baltimore investigators. That, along with other portions to be agreed upon later by defense attorneys and the prosecution, will be removed from the record.
Forrest's decision sent Ulbricht's attorney Joshua Dratel reeling. Dratel, already flustered by an emergency dentist appointment that delayed the start of the trial by over an hour, complained it was "unfair" that prosecutors could retroactively "eviscerate" the defense's line of questioning.
"It cannot be that this was not on the radar for them," Dratel said.
The defense attorney told Forrest he needed more time to rework his cross-examination, but the judge denied his request and ordered him conclude his questioning.
What followed was a seemingly unending string of objections from both sides, and what one court officer called the longest sidebar meeting he could remember. By the end of the day, Der-Yeghiayan, who began testifying last Tuesday, was still on the stand.
The acrimony punctured what had been for several days an oddly relaxed atmosphere in the court, and dampened lingering feelings from last week that Ulbricht's attorney had cast doubt on the prosecution's case. Ulbricht's family and supporters, some of whom became animated Thursday as it appeared Forrest was siding with the defendant, were subdued after the ruling.
Ulbricht is charged with a litany of crimes, including conspiracy, money laundering and narcotics trafficking, and could potentially face life in prison.
Though weakened, the defense can still focus on uncertainty surrounding the identity of Dread Pirate Roberts. Pinning Ulbricht to the username is central to the prosecution's claims. On Tuesday, Dratel questioned Der-Yeghiayan about yet another individual, a Canadian named Anand Athavale, who was on the federal radar in 2012 along with Karpeles.
Some experts said Karpeles' hinted involvement in Silk Road was not a compelling defense.
"I find that [argument] so fanciful," Anupam Chander, director of the California International Law Center, told VICE News. "He's making millions of dollars with this operation that's already at the edges of the law. Is he really going to get involved in something that is so clearly illegal, and destroy the reputation he wants for bitcoin as a legitimate currency?"
Chander's skepticism appeared to be backed by a letter sent to the court Monday by federal prosecutors. The motion, which was largely endorsed Tuesday by Forrest, called for the omission of parts of Der-Yeghiayan's testimony and sought to downplay the importance of the investigations into Karpeles.
Prosecutors Serrin Turner and Timothy Howard admitted that silkroadmarket.org — the site referenced Thursday by Dratel — was in fact associated with Karpeles, but only in his capacity as owner of Kalyhost, the web hosting service through which the domain name was registered. The service, like Silk Road, accepted anonymous transactions through bitcoin. Karpeles has denied any connection with Silk Road.
Silk Road, which was only accessible via the anonymizing Tor network, began in early 2011 and ran with few interruptions until the beginning of October 2013, when it was shut down following Ulbricht's arrest. Federal authorities allege the site drew commissions on some $1.2 billion in transactions, the vast majority of which involved the sale of illicit drugs.
When federal agents arrested Ulbricht in a San Francisco public library, he was allegedly chatting over an encrypted connection with Der-Yeghiayan, who had infiltrated Silk Road and was working for the Dread Pirate Roberts under the username "cirrus." Authorities seized Ulbricht's laptop, which they say had the chat window open, as well as the site's so-called "mastermind" administrative section.
In his opening statement Tuesday, Dratel conceded that Ulbricht had started the site in 2011, but said it was an "economic experiment" that he grew tired of and handed over to other users. On Thursday, Dratel got Der-Yeghiayan to confirm that he — in Dratel's words — "had probable cause that Mark Karpeles was intimately involved, as the head of Silk Road."
"Our position is that he [Karpeles] set up Mr. Ulbricht," Dratel later told judge Forrest.
The unprecedented case against Ulbricht has shone a spotlight on anonymizing technologies. Journalists, dissidents, and other privacy-minded individuals who want to keep their identities secret also use Tor.
"This case is going to provide insight into what kind of proof the government can muster to activity that occurs online," Hanni Farkoury, senior staff attorney at the Electronic Frontier Foundation, told VICE News. "We care about how the government characterizes technologies like Tor."
Follow Samuel Oakford on Twitter: @samueloakford
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