Originally published on TechCrunch:
Feds Nabbed For Big Bitcoin Heist Involving Gox And Silk Road
 http://techcrunch.com/2015/04/01/feds-nabbed-for-big-bitcoin-heist-involving-gox-and-silk-road/

The scandal of Mt. Gox, Silk Road, Ross Ulbricht, and the Federal Agents
The Silk Road was known as a massive underground, blackmarket economy that used only one currency - Bitcoin. It was a place for darknet users to access goods and services that for many was a place to buy medical marijuana, high grade cocaine, and Afghan hash. This week the Bitcoin and Darknet communities received shocking news that has been kept quiet by a handful of people which include Mark Karpeles formerly of the now defunct Bitcoin exchange - Mt. Gox.

According to a statement issued by the United States Department of Justice on Monday (backup), 2 federal agents are charged with wire fraud, money laundering and falsifying government documents for stealing Bitcoin while working on the Silk Road investigation. The agents were part of a Baltimore taskforce investigation into the Silk Road marketplace which included the task of building a relationship with Ross Ulbricht (aka 'Dread Pirate Roberts' the accused owner of Silk Road who was found guilty last month). The 2 agents leveraged their status as federal agents to mislead, pressure, and personally profit from their activities during the investigation - all of it which went unrreported or unnoticed to the federal departments that employed them. It was the IRS who found and external federal departments who filed the charges from California on March 25th.

Information in the criminal complaint (backup) reveals that the Baltimore task force gained administrator access to Silk Road after arresting one of its employees. On this team was Secret Service Agent, Shaun Bridges who logged into the admin account that afternoon and evening to personally conduct sizeable thefts from Silk Road accounts. This theft was the cornerstone of the alleged kill for hire that was part of Ulbricht's case against him, as it was a Baltimore indictment of Ulbricht outlining his communication with an undercover agent to murder an employee -  that same employee who Ulbricht was misled to believe had stolen from Silk Road, and had already been arrested.

What's interesting is that these Bitcoins were moved from Silk Road to Mt. Gox by Shaun Bridges where he could exchange them from BTC to USD, giving him time to set up a LLC and open a bank account so he could send the funds back to the United States.

During that same time - the other federal agent charged, Carl Force reached out to Mark Karpeles of Mt. Gox via Linkedin and asked if he would back Carl Force on a sale for 250 bitcoins, as well as indicating he was worked for the DEA but was 'exploring other work opportunities.'

During this time, Bridges' bank account for the LLC was funded exclusively by 9 bank wires from Mt. Gox totaling $820,000 in a 3 month period. After completing these bank transfers, Shaun Bridges signed the <a href="http://www.scribd.com/doc/162503556/Mt-Gox-Wells-Fargo-Seizure-Warrants">seizure warrant</a> against Mt. Gox confiscating $5 million USD - shutting down the Bitcoin exchange. The affadavit charges that Mt. Gox was acting as a money services business without a license, unlawfully allowing people to exchange bitcoins to fiat currency, and then withdraw those funds into bank accounts - an activity which Shaun Bridges had conducted personally just days before.

A lovely email from Carl Force after the Mt. Gox seizure, mockingly told Karpeles that he should have partnered with him - an offer which was declined by Karpeles a couple days before the shutdown. It's important to note that Carl Force, a DEA Special Agent for 15 years - was double employed during this time as a 'Compliance Officer' for a Bitcoin exchange called coinMKT where he personally invested $110,000 USD worth of bitcoin.

During his role there which involved the ability to see into personal accounts, Carl Force used his DEA access to illegally run criminal history checks against users of the exchange and illegally froze one of its individual customer's accounts containing $297,000 USD worth of digital currency and $37,000 USD in cash. The account in question belonged to a California resident who worked as a self-employed actor - unfortunately, due to a glitch in CoinMKT's system preventing withdrawals over $10,000 - this account was flagged gaining the attention of Carl Force to take control of the funds even though he lacked a sufficient legal basis on which to do so. Claiming that the seizure was part of a federal investigation (which was faked), Carl Force then had coinMKT move the bitcoins to his personal account at Bitstamp. Thankfully, Bitstamp became suspicious and froze the account after they noticed Carl Force trying to withdraw $80,000 USD into a personal bank account - while using the TOR (private) browser because he didnt wan't the 'NSA looking over [his] shoulder :) '

It was only after Bitstamp talked to Bridges, that Carl Force's accounts were unfrozen and he was able to move the stolen Bitcoins which were exchanged to USD, and transferred to his personal bank account. Carl Force's life improved significantly after that with several real estate purchases, transfers to off-shore banking accounts, paying off several debts, and paying off his $130,000 mortgage in full.

The funds which flowed from Silk Road, Mt. Gox, Mark Karpeles, the self-employed actor to Shaun Bridges and Carl Force totaled millions of dollars worth of bitcoin and digital currency. The federal agents used a number of bitcoin exchanges, payment processors, and bank accounts in an attempt to move their funds between accounts and identities. Unfortunately for them, they were unfamiliar with how Bitcoin is inherently traceable and transparent with transaction flows. Thankfully, we can credit IRS Special Agent Gambaryan Tigran for piecing this together.


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Tracking all the Bitcoin movements from federal agents
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Courtesy of Mark Karpeles