In another twist, a large amount of stolen bitcoin will repay the $183 million compensation of the creator of the dark web market.
ROSS ULBRICHT, who was convicted of creating the legendary drug market on the Silk Road, has never received much mercy from the U.S. legal system. In 2015, he was sentenced to life in prison without parole. His appeal was rejected, as was the pardon he sought from President Trump. But more than a year ago, it seemed that Ulbricht had finally broken a different kind: The nine-figure debt he racked up with the U.S. government as part of his sentence would be cleared — all thanks to the accidental hoarding of a hacker. He stole a large amount of bitcoin from his market.
Last year, prosecutors quietly signed an agreement with Ulbricht stipulating that part of the new bitcoins found on Silk Road, seized from an unnamed hacker, would be used to cancel the more than $183 million in restitution that Ulbricht had been ordered to pay as part of his 2015 conviction, a figure calculated from the total illegal sales of the Silk Road is based on the exchange rate at the time of each transaction. Despite the fact that the recently unearthed bitcoins — now worth billions of dollars — are in itself proceeds from crime, the Justice Department appears to have reached an agreement with Ulbricht to avoid any claims he might make about this money: In exchange for Ulbricht’s agreeing to give up any ownership he may have over bitcoin, part of that will be used to pay his full compensation.
“The parties agree that the net proceeds from the sale of [bitcoin] lost under this agreement will be credited to any outstanding balance of the Money Judgment,” read a court filing from last year, using the phrase “money ruling” to refer to Ulbricht’s 2015 replacement order. The document, filed in February 2021, was signed by both Ulbricht and David Countryman, a prosecutor in the asset forfeiture unit of the U.S. Attorney’s office for the Northern District of California. The Justice Department did not respond to WIRED’s request for comment.
Ulbricht, of course, still faces life in prison. He served that eight-year sentence at prisons in New York and prisons in Colorado and Arizona. But repaying his refund amount could mean he could earn money in prison to share with family or friends without being seized or caught repaying debts.
— or even keep any previously unknown bitcoin memory that he may possess, as long as they are not tied to the Silk Road or other criminal sources. And if his sentence is eventually commuted, as his supporters and the years-long Free Ross campaign have petitioned since before sentencing, he will return to the world as a liberal without owing hundreds of millions of dollars. (Ulbricht is pursuing a “habeas lawsuit” in federal court to overturn his 2015 conviction based on the argument that he received ineffective representation from his lawyers.)
In a strange twist, the deal to clear Ulbricht’s compensation appears to have been made without the involvement — or even the unknown — of prosecutors in New York’s Southern District, Justice Department attorneys who handled Ulbricht’s case. “This resolution is not coordinated with SDNY,” a former Justice Department employee told WIRED.
“Not coordinating with the prosecution and obtaining a sentence is extremely unorthodox.”
Nick Weaver, a researcher and computer scientist at UC Berkeley, said the surprise deal to cancel Ulbricht’s compensation could be made simply to clear any obstacles to major government financial seizures. Weaver has been closely monitoring Ulbricht’s case for years and even proved Ulbricht’s bitcoins could be traced from the Silk Road during his testing. “This is a way for the government not to have to deal with pointless legal troubles during the forfeiture process,” Weaver said, arguing that Ulbricht may have found a lawyer to fight and delay the forfeiture in exchange for a fraction of any potential rewards. . “I’m sure Ross Ulbricht can ask a lawyer in an unexpected case to challenge forfeiture, simply because of his 2% chance of winning. It’s still a payment of hundreds of millions of dollars to a lawyer.”
A series of bizarre events that eventually led to Ulbricht’s compensation first came to light in November 2020, when the Justice Department announced that it had seized nearly 70,000 bitcoins from someone it referred to only as Individual X. That unnamed individual, According to the IRS criminal investigation affidavit, it stole bitcoin assets from Silk Road while it was still online by exploiting a security vulnerability on the site. Ulbricht, according to the affidavit, went so far as to personally threaten X in an attempt to persuade them to return the money. But instead, Individual X has been hoarding money for more than seven years as the cryptocurrency is highly valued for its value. An IRS criminal investigation was able to trace the source of the money, identify Individual X and persuade them to transfer the stolen drug money to avoid criminal prosecution.
By the time nearly 70,000 bitcoins were seized, they had risen to more than $1 billion in value — at the time, the largest criminal seizure ever made by the Justice Department.
(That record has since been broken by the seizure of $3.6 billion from a New York couple accused of money laundering following the hack of cryptocurrency exchange Bitfinex.)
However, in the period since that seizure, court records show that the Justice Department has struggled with a series of seemingly frivolous claims against bitcoin, which has prevented it from immediately selling off the money as with other seized cryptocurrencies. That resulted in bitcoin rising in price more, to nearly $3 billion at the current exchange rate. When the coins are eventually sold and that money is added to the U.S. Treasury, it will easily cover Ulbricht’s compensation, with billions of dollars in spare.
Ulbricht’s mother, Lyn Ulbricht, who has advocated for her son’s defense and the case for parole since his arrest, wrote in a statement to WIRED that the reimbursement of his compensation represents a significant victory.
“We are pleased that the financial penalties wrongfully imposed on Ross have been overturned, as well as that other false charges against him have been brought to federal court after trial,” Ulbricht’s mother wrote, referring to a separate hired murder charge. in the District of Maryland was left behind after Ulbricht was sentenced to life in prison. “This is just another reminder that the case against Ross has always been misrepresented and weak, and we look forward to the day ross’ wrongful conviction is corrected and he returns to the free world where he can contribute to society.”
However, she noted that like any prisoner, her son was unable to keep any financial assets in prison other than proxy accounts for basic needs. For example, recent NFT sales based on Ulbricht’s artwork have raised more than $6 million, but the funds have been turned into trusts devoted to Ulbricht’s defense,
as well as charitable donations to other prisoners and their families.
Berkeley’s Weaver argued that the reimbursement of the compensation did not mean much to Ulbricht’s hopes of pardoning or changing his sentence. But that didn’t happen with a refund order that Weaver always saw as a misguided attempt to “draw blood from the rocks” to squeeze Ulbricht for more bitcoin.
Weaver concluded: “Someone who participated in the early days of the Silk Road was no longer the object of anger, the feds received compensation, and Ross no longer had that stupidity that stalked him,” Weaver concluded. “It seems that both sides are mutually beneficial.”