Two US Federal agents involved in the investigation of the Silk Road marketplace have been charged with a slew of crimes: fraud, corruption, money laundering and tax violations. The criminal complaint was unsealed today: http://www.justice.gov/sites/default/files/opa/press-releases/attachments/2015/03/30/criminal_complaint_force.pdf.
According to the affidavit, one agent sold information about their investigation to the operator of Silk Road for $100k. He also allegedly worked at a Bitcoin company where he ran illegal criminal checks on customers and stole $300k worth of bitcoins. There are many more allegations contained in the affidavit starting at page 3.
The other agent allegedly stole bitcoins from the Silk Road, exchanged them on Mt. Gox and then wired back the money to a new LLC shell company. This activity was alleged to have happened well before the government seized the Silk Road's accounts (i.e. rogue government agents hacked the Silk Road before the government officially did).
Of the many other allegations in the affidavit here are some of the most fascinating (although none have been proven in court):
1. The undercover agent communicating with the Silk Road operator switched to using PGP-encrypted emails that only he had the private key for (pg. 13). The DEA still doesn't have the private key and can't decrypt the messages.
2. To hide their identity, one of the government agents using encrypted email and pretended to be two different people. Unfortunately they used the same outdated version of GPG and communicated information known only by a few people. This was a key part of connecting the two identities as the same person. (pg. 22)
3. An agent seized cash + digital currency from someone using a Bitcoin exchange service but only filed a seizure report for the cash. (pg. 32)
4. Venmo (owned by PayPal) received a fake subpoena from a rogue DEA agent and reported it to the agent's supervisors. (pg. 34) To retaliate against Venmo, the DEA agent tried to have their bank accounts seized. (pg. 35)
5. A Silk Road employee who provided customer service was arrested in a sting that involved delivering a kilo of cocaine. (pg. 41) This was the person who turned over the login credentials for the Silk Road.
6. The Secret Service agent who was given the passwords from the customer service employee stole bitcoins from the site while the employee was being questioned by the government. The Silk Road operator thought the bitcoins had been stolen by the employee and then tried to hire a person they thought was a major drug dealer to kill the employee. (pg. 42) The major drug dealer turned out to be a DEA agent who was working with the Secret Service Agent. They then faked the employee's death and collected $80k from the Silk Road operator for the supposed murder. (pgs. 42-43)
7. Bitstamp's anti-money laundering procedures played a role in identifying the crooked DEA agent. (pg. 47) Other Bitcoin companies provided information that was useful in the investigation.
8. Upon resigning, the DEA agent asked if he could copy receipts for personal items from his computer. A supervisor noticed that he was copying a folder called "Bitstamp" and took away the computer. (pg. 48)
I'm very impressed with the competence of the US officials involved in this investigation. The explanations of Bitcoin terms are spot on and it looks like they've done a thorough job of tracing transactions using the Blockchain (e.g. on pg. 55). A very interesting angle to this case is that the Bitcoin Blockchain allows this kind of analysis to be done. There's a very interesting angle to this prosecution: if the Silk Road had been a physical location and the agents had stolen cash it's likely that no one would ever have found out.
Here's the New York Times coverage of the arrests of the government agents: http://www.nytimes.com/2015/03/31/nyregion/silk-road-case-federal-agents-charges.html. Ars Technica has a more detailed write-up: http://arstechnica.com/tech-policy/2015/03/two-feds-who-investigated-silk-road-accused-of-stealing-from-it-too/.
In a couple years this will be a movie.