Bitcoin Secret Agents Were Pirates Themselves

[KC native]

Going to start this in the lounge. Mods feel free to move it if it gets contentious.

http://www.bloombergview.com/article...tes-themselves

Carl Mark Force IV was an undercover operative for the Drug Enforcement Agency and also he is named Carl Mark Force IV. With a name like Carl Mark Force IV he could afford to adopt less ... forceful online pseudonyms. For instance, while he was investigating "Dread Pirate Roberts," the pseudonymous operator of the Silk Road drugs/stolen-credit-cards/murder-for-bitcoins site, he used the bland undercover online alias "Nob." But now prosecutors claim that he was also, on the side, extorting money out of Dread Pirate Roberts under a different alias:

I have reviewed private messages between "French Maid" (FORCE) and DPR obtained from the Silk Road server imaged by the FBI. The messages span from August 26, 2013 through September 14, 2013. The bulk of the messages are encrypted with PGP keys, but some early messages are not encrypted. In the first message in this thread, dated August 26, 2013, "French Maid" wrote to DPR: "I have received important information that you need to know asap. Please provide me with your public key for PGP. Carl." (Emphasis added.)

Just four hours later, "French Maid" sent a follow-up message to DPR with the subject line "Whoops!" and a message stating "I am sorry about that. My name is Carla Sophia and I have many boyfriends and girlfriends on the market place. DPR will want to hear what I have to say xoxoxo." (Emphasis added).

There is no playbook for blackmailing a secretive criminal mastermind using unencrypted online messages in which you pretend to be a French maid. No one, not even Carl Mark Force IV, does that every day. So it's understandable that he might have forgotten to sign his message with a fake name that was (1) gender-appropriate and (2) not his actual real first name. Could happen to anyone! The important thing is that he quickly corrected the mistake. No one could think that "Carla Sophia" was the same person as Carl Mark Force IV, and the initial "Carl" was obviously just a typo.

French Maid allegedly extorted about $100,000 worth of bitcoin out of Ross Ulbricht, who was recently convicted of being Dread Pirate Roberts. We know this because, delightfully, Ulbricht/DPR kept much better records than the DEA:

Specifically, in a text document recovered from Ulbricht's computer titled "log," there is an entry dated September 13, 2013, in which Ulbricht wrote: "French Maid claims that mark karpeles has given my name to DHLS [sic]. I offered him $100K for the name." Days later, Ulbricht wrote "I paid French Maid $100K for the name given to DHLS by karpeles."

As far as I can tell, the FBI ties Force to French Maid on pretty circumstantial evidence. The Carl/Carla thing, but also, not too many people knew that law enforcement was trying to arrange an interview with Mark Karpeles about Dread Pirate Roberts. And: "Not only did FORCE and 'French Maid' both use the same brand of PGP software, they also both used the same outdated version of that software, 1.4.12. Version 1.4.12 was released on January 2012, and was replaced with a new version by December 2012, and was one of several versions of GnuPG software." I hope I am never arrested because an extortionist and I use the same outdated iOS on our phones! Also though "the 770 bitcoin payment DPR made to 'French Maid,' worth approximately $98,000 at the time, ended up in FORCE's own personal digital currency account." Which seems like pretty good evidence? I don't know why they didn't lead with that.

Everything else that Force is accused of is equally wonderful. As part of his official undercover identity, he allegedly sent DPR encrypted messages for which his bosses did not have the key, and trousered some of the bitcoins that DPR sent him as part of an approved sting. And he allegedly extorted DPR from yet another pseudonymous account; I guess to make up for "French Maid" he named this one "Death From Above." (Still not as intimidating as Carl Mark Force IV!) Death From Above did not have boyfriends or girlfriends or sign his messages xoxoxo. Death From Above was all business. And abbreviations:

Later that day "Death From Above" (FORCE) replied to DPR, this time dropping a reference to AA's name, stating "It's not that easy [AA]. I'm legit. Green Beret. Friend of [C.G.]. I have access to TS/SCI files that FBI, DEA, AFP, SOCA would kill for. In fact, that is what I do . . . kill. The only thing that I do . . . Don't worry DoD has no interest in you and your little website. North Korea and Iran are a lot more important. In fact, as far as the Army and Navy are concerned you are a nobody. Petty drug dealer. But, [C.G.] was somebody. So tell me where he is and we will be done with this."

AA was a different person suspected of being DPR, not Ulbricht, and C.G. was a former Silk Road employee who was working with law enforcement and on whom DPR allegedly ordered a hit.

For my money, Force's best extracurricular activity, though, was at CoinMKT, "a third-party digital currency exchange company" in which he "had personally invested approximately $110,000 worth of bitcoin":

FORCE functioned as the de facto Chief Compliance Officer for CoinMKT all the while employed as a DEA agent, even allowing himself to be featured in CoinMKT's "pitch decks" to venture capital investors and allowing himself to be listed as CoinMKT's anti-money laundering and/or compliance officer in order to benefit CoinMKT (a company in which FORCE had invested).

This apparently violates DEA conflict of interest rules on its own, but also his role as chief compliance officer seems to have consisted of:

1. Being notified of suspicious transactions,
2. Demanding that suspicious accounts be closed, and
3. Demanding that the money in those accounts be moved into his account.

Imagine if real bank compliance officers worked that way! That's how you'd get the top brains in finance to work in compliance. Let them keep any suspicious money they find.

Actually Force's alleged compliance scam was subtler than that: He closed a suspicious account and seized the money in it for the government. (Apparently it is super-easy for the DEA to seize money; there is not a lot of paperwork to slow it down.) So the account had $37,206.30 in U.S. dollars, every penny of which went to the government. It's just that it also had about $297,000 worth of bitcoin, Litecoin, feathercoin and worldcoin; Force took those for himself. The trick seems to have been that the DEA knew what dollars were, but wasn't clear on what bitcoins were, so Force felt free to just take them.

Also this one time he allegedly e-mailed a copy of his DEA badge to Venmo to get his account unfrozen.

As part of the same case, prosecutors today also charged the less wonderfully named Shaun W. Bridges, a former Secret Service agent. The case against Bridges is less comical but in some ways even more insane. The most shocking allegations against Ulbricht/Dread Pirate Roberts are that he thought that a Silk Road employee -- C.G. -- was stealing from him, and that he ordered a hit on C.G. But in fact the thief was -- allegedly! -- Bridges, and the hit man was Force. C.G. was talking to law enforcement one day:

At some point during that day, DPR communicated to Nob (FORCE) that Silk Road had suffered thefts and that those thefts were associated with C.G.'s account. Law enforcement questioned C.G. about this, and C.G. denied that he had committed the thefts. According to chats I have reviewed from the Silk Road servers and from Ulbricht's laptop (as well as communications between DPR and one of his employees at the time of the January 25, 2013 thefts) it appears that DPR and the employee believed C.G. was responsible for the thefts, because they managed to associate C.G.'s account, "Flush," with the theft. As a result of DPR's belief that C.G. was responsible for the thefts, DPR communicated with Nob (FORCE) -- whom he believed to be a major drug dealer with the ability to procure hit men -- and hired Nob to have his associates kill C.G.

Law enforcement faked the murders, and Bridges was responsible for "working on 'proof of death' photographs of C.G." But also, says the FBI:

Based on my review of data from the Silk Road servers, I believe the initial Silk Road thefts were likely committed by whoever was controlling a Silk Road account with the username "Number13."

And

I believe that BRIDGES controlled and/or had access with others to "Number13," the account that appears to have initiated the sizeable bitcoin thefts.

And

Based on the foregoing, I believe that BRIDGES, or someone acting on his behalf, utilized the "Flush" and "Number13" accounts, but particularly the "Flush" account to fraudulently act as an administrator to resset pins and passwords on various Silk Road venders' accounts, and then caused bitcoins to be moved from those accounts into a particular wallet and then into the Mt. Gox exchange.

Where, say prosecutors, he stole them: "Bridges allegedly diverted to his personal account over $800,000 in digital currency that he gained control of during the Silk Road investigation."

So basically a rogue Secret Service agent was running Silk Road and stealing all the money on it. (Say prosecutors.) And that theft is what caused Dread Pirate Roberts to allegedly hire a fake hit man -- who turned out to be a rogue DEA agent.

This (alleged) rampant and lunatic criminality in the DEA, Secret Service, Silk Road and CoinMKT do not reflect well on the institutions either of law enforcement or of bitcoin. But there's another thing. Ulbricht was convicted of various drug and money-laundering charges in a trial last month, in which jurors heard evidence about his trying to arrange the murder of five people. The jury did not, on the other hand, hear about the really extraordinary corruption and misconduct in the government's investigation of Ulbricht. In an e-mailed statement, Joshua Dratel, Ulbricht's lawyer, says:

The government's considerable efforts at keeping this monumental scandal from being aired at Ross Ulbritcht's trial is itself scandalous. In addition to keeping any information about the investigation from the defense for nearly nine months, then revealing it only five weeks prior to trial, and then moving to keep sealed and secret the general underlying information so that Mr. Ulbricht could not use it in his defense at trial, and then stymying the defense at every turn during trial when the defense tried to introduce favorable evidence, the government had also refused to agree to the defense's request to adjourn the trial until after the indictment was returned and made public.

It's pretty nuts, right? Dratel adds: "It is clear from this Complaint that fundamentally the government's investigation of Mr. Ulbricht lacked any integrity, and was wholly and fatally compromised from the inside." Right? According to prosecutors, the people investigating Silk Road seem to have believed that Bitcoinia was a land without laws, and that they were entitled to blackmail and steal to their hearts' content, as long as they did it online and in bitcoins. That seems like it might have been relevant to the jury considering the government's case against Silk Road.

1. The FBI says: "This is not akin, for example, to two people using the same model of mobile phone but both having software that is out of date," though it doesn't exactly say why.

2. You'd have to say they reflect worse on law enforcement than bitcoin. Like in a vacuum you'd think that hiring a DEA money-laundering investigator as a compliance officer would be a good thing for a bitcoin company.

3. He was not charged with murder in that case, though he "faces one murder solicitation charge in Baltimore" -- the location of the investigation that employed Force and Bridges.