$3bn Silk Road confiscation to write off Ross Ulbricht’s debt

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Ross Ulbricht, convicted creator of the legendary Silk Road Darknet Market for drugs, has never received special mercy from the US legal system. In 2015 he was sentenced to life imprisonment without parole. His the appeal was rejected, as was the pardon he asked for from President Trump. But just over a year ago, Ulbricht appeared to finally have a different kind of respite: The nine-figure debt he owed the US government as part of his sentence would be erased — all thanks to the accidental accumulation of a hacker who stole massive amounts of bitcoin from his marketplace.

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Last year, prosecutors quietly signed an agreement with Ulbricht that stipulates that a portion of newly discovered Silk Road bitcoins seized from an unnamed hacker will be used to pay off more than $183 million in restitution that Ulbricht was ordered to pay as part of his 2015 verdict. , a number calculated from the total illicit sales of the Silk Road based on the exchange rates at the time of each transaction. Even though the most recently unearthed stash of bitcoin, now worth billions of dollars, was itself criminally obtained, the Justice Department appears to have struck a deal with Ulbricht to avoid any claim he might have made on the money: a waiver agreement. from any ownership of bitcoins, part of which will be used to pay his restitution in full.

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The parties agree that the net proceeds from the sale [bitcoins] forfeited pursuant to this agreement shall be set off against any unpaid balance of the cash judgment,” reads last year’s court document, where the phrase “money judgment” is used to refer to Ulbricht’s 2015 restitution order. . The document, filed in February 2021, was signed by Ulbricht and David Countryman, an Asset Forfeiture Division Attorney for 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 a life sentence. He has already served eight years of that sentence in prisons in New York and correctional facilities in Colorado and Arizona. But paying his restitution could mean he can earn money in prison to share with family or friends, without it being confiscated or stolen to pay off his debts, or even keeping any previously unknown stash of bitcoin that he can own, as long as they are not connected to the Silk Road or other criminal sources. And if his sentence is eventually reduced, as his supporters and the years-long Free Ross campaign have been asking for even before his sentencing, he will once again enter the world as a free man without hundreds of millions of dollars in debt. (Ulbricht is filing a “habeas petition” in federal court that will overturn his 2015 conviction, based on the argument that his lawyers did not effectively represent him.)

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Ironically, the agreement to cancel Ulbricht’s restitution payments appears to have been negotiated without the involvement—or even the knowledge—of the U.S. Attorneys for the Southern District of New York, the Justice Department lawyers who handled Ulbricht’s case. “This resolution was not agreed with the SDNY,” a former Justice Department official told WIRED. “It is extremely unorthodox not to coordinate with the prosecutor’s office that issued the decision.”

The surprise deal to cancel Ulbricht’s restitution may have been done simply to smooth over any obstacles to a massive financial confiscation by the government, says Nick Weaver, a researcher and computer scientist at the University of California at Berkeley. Weaver followed the Ulbricht case closely for many years and even proved that Ulbricht’s bitcoins can be traced back to the Silk Road during his trial. “It was a way for the government to avoid pointless legal hassles during the forfeiture process,” Weaver says, arguing that Ulbricht could have found a lawyer to fight and delay the forfeiture in exchange for a fraction of any potential reward. . “I’m sure Ross Ulbricht could have hired a contingency attorney to contest the forfeiture, simply because a 2 percent chance of winning would still be several hundred million dollars in attorney fees.”

The strange series of events that eventually led to Ulbricht’s unexpected restitution first came to light in November 2020, when the Justice Department announced that it confiscated nearly 70,000 bitcoins from someone he referred to only as “Individual X”.. This unnamed individual, according to an IRS sworn statement, stole a bitcoin fortune from Silk Road while he was still online by exploiting a security vulnerability on the site. Ulbricht, according to the affidavit, went so far as to personally threaten Person X in an attempt to persuade him to return the money. But instead, Individual X kept a supply of coins for over seven years as the cryptocurrency skyrocketed in value. An IRS criminal investigation was able to trace the funds, identify Person X and convince him to give up the stolen drug money to avoid prosecution.

By the time almost 70,000 bitcoins were confiscated, their value had risen to over $1 billion — at the time, the largest criminal takeover ever carried out by the Department of Justice. (That record has since been broken $3.6 billion seizure from New York couple accused of laundering proceeds from the Bitfinex hack.)

However, in the time since the arrest, court records show that the Justice Department fought off a series of seemingly unfounded claims against bitcoin, which prevented it from immediately selling the coins, as it does with other seized cryptocurrencies. This caused bitcoin to rise in price even more, to almost $3 billion at the current exchange rate. When the coins are eventually sold and this amount is added to the US treasury, it will easily cover Ulbricht’s restitution, leaving billions of dollars behind.

Ulbricht’s mother, Lyn Ulbricht, who has championed her son’s defense and pardon case since his arrest, wrote in a statement to WIRED that paying off his restitution represents a significant victory. “We are very pleased that the financial penalty wrongfully imposed on Ross has been dropped, just as other false charges against him have been dropped by federal court after the trial,” Ulbricht’s mother writes, referring to the separate charge of contract killing. in Maryland County, which was expelled after Ulbricht’s life sentence. “This is just another reminder that the case against Ross has always been misrepresented and weak, and we look forward to the day when Ross’s unfair conviction is corrected and he returns to the free world where he can contribute to society”.

However, she notes that, like any prisoner, her son cannot have any financial assets in prison other than a deposit account for basic needs. For example, recent sales of NFTs based on works of art by Ulbricht, raised over $6 millionAccording to her, the funds went to the Ulbricht defense fund, as well as charitable donations to other prisoners and their families.

Paying restitution doesn’t matter much to Ulbricht’s hopes of a pardon or a change of sentence, argues Berkeley’s Weaver. But it cancels the restitution order, which Weaver has always considered a misguided “blood from stone” attempt to squeeze more bitcoins out of Ulbricht.

“Someone who participated in the early days of Silk Road is no longer the subject of the federation’s wrath, the federation has received its restitution, and this nonsense no longer hangs over Ross,” concludes Weaver. “It looks like it’s a win-win for everyone involved.”

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