Accused Silk Road creator goes to trial amid U.S. scrutiny of bitcoin

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NEW YORK (Reuters) - A U.S. crackdown on use of the digital currency bitcoin for drug trafficking and other crimes is headed for its highest-profile test yet, as a trial begins for the alleged creator of an online marketplace catering to vice.

Jury selection is scheduled for Tuesday in Manhattan federal court in the case of Ross Ulbricht, who authorities say created Silk Road, an online black market where drugs and others illegal goods could be bought anonymously using bitcoins.

The trial, expected to run for up to six weeks, will cast a spotlight on the dark side of virtual currencies and so-called Darknet markets where illicit goods can be secretly bought.

Ulbricht, 30, has never conceded creating Silk Road and has pleaded not guilty to seven counts including operating a continuing criminal enterprise and conspiracy to commit narcotics trafficking.

Prosecutors say Ulbricht took extreme steps to protect Silk Road, soliciting the murder of six people who posed a threat. No evidence exists the murders were carried out.

The former Eagle Scout faces up to life in prison if convicted. His supporters include bitcoin enthusiasts and libertarians, who call the case an attack on Internet freedom.

"It's not just about one man and one family, but it's something that will impact law going into the 21st Century," Lyn Ulbricht, his mother, told a libertarian gathering in June.

Joshua Dratel, his lawyer, declined comment.

'ECONOMIC SIMULATION'

Silk Road operated from at least January 2011 to October 2013, authorities say, generating sales of $1.2 billion and commissions of $80 million by the time the FBI seized it and arrested Ulbricht.

Prosecutors say Ulbricht ran it as the "Dread Pirate Roberts," an alias borrowed from a character in the 1987 movie "The Princess Bride." The website relied on the so-called Tor network, which lets users communicate anonymously.

The website was created after Ulbricht, a Texas native with a bachelor's degree in physics, left graduate studies at the Pennsylvania State University in 2010.

On LinkedIn, Ulbricht wrote that his goals had "shifted" and he was now "creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force."

Prosecutors say the "economic simulation" was Silk Road, which made him rich: From his laptop, the government seized 144,336 bitcoins that on Friday were worth $41.2 million.

While Ulbricht was charged in a separate case in Maryland over an alleged murder-for-hire plot, the New York indictment does not have substantive charges regarding them. U.S. District Judge Katherine Forrest, who is presiding over the case in Manhattan court, has said she will allow prosecutors to present evidence on allegations Ulbricht ordered killings to defend his business.

NEW MARKETS

While Silk Road's takedown marked a high point in efforts to disrupt illegal Darknet market activity, law enforcement continues to wrestle with it.

Similar websites have since emerged, and by December they had 78 percent more drug listings since Silk Road's seizure, according to Internet safety nonprofit Digital Citizens Alliance.

Among the new websites was one under Silk Road's name, leading to charges in November against alleged creator Blake Benthall amid a broader U.S. and European seizure of dozens of websites.

Even then, the bust did not shutter larger websites like Evolution, which unlike Silk Road also sells weapons and stolen credit cards, the Digital Citizens Alliance says.

Manhattan U.S. Attorney Preet Bharara, whose office is prosecuting Ulbricht, compared it to "a game of Whac-A-Mole" but said that did not mean giving up.

"The best way to go about it is to keep at it," he said. "Ultimately you have the deterrent effect, because people realize, 'We can't change our ops enough not to get caught.'"

(Reporting by Nate Raymond in New York; Additional reporting by Aruna Viswanatha in Washington; Editing by Noeleen Walder, David Ingram and Andrew Hay)

Jury selection is scheduled for Tuesday in Manhattan federal court in the case of Ross Ulbricht, who authorities say created Silk Road, an online black market where drugs and others illegal goods could […]

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