The former head of the bankrupt Mt. Gox Co. bitcoin exchange was originally believed by U.S. investigators to be the secret mastermind behind the Silk Road online drug marketplace, an agent who infiltrated the website told jurors at the trial of the man prosecutors now accuse of running it.

Jared Der-Yeghiayan, a Department of Homeland Security special agent, testified Thursday that he believed in mid-2013 that Mark Karpeles, then Mt. Gox’s chief executive officer, was also head of Silk Road, where buyers used bitcoins to purchase drugs and other illegal items anonymously.

Ross William Ulbricht, who was arrested in October 2013 and charged with running Silk Road under the pseudonym “Dread Pirate Roberts,” is on trial in Manhattan federal court on charges of conspiracy and Internet drug trafficking.

Ulbricht claims he gave up control of the site within months of starting it. His lawyer, Joshua Dratel, questioned Der-Yeghiayan in an attempt to persuade jurors that Karpeles was behind Silk Road and set up Ulbricht to take the blame.

Dratel asked the agent about statements he drafted in May and August in 2013 to get a search warrant for Karpeles’ email.

“You were ready to swear that there was probable cause to believe that those Gmail accounts contained evidence of instrumentalities of narcotics trafficking and money laundering, right?” Dratel asked.

“Correct,” Der-Yeghiayan answered.

Der-Yeghiayan said that at the time he believed Karpeles, whose company was the world’s biggest exchanger of bitcoins, set up Silk Road to stimulate demand for the virtual currency and drive up its value. He said he concluded that Karpeles, who was born and educated in France, ran Silk Road while a Canadian associate named Ashley Barr was the online voice of the site.

“I am not and have never been ‘Dread Pirate Roberts,’ ” Karpeles, who lives in Japan, said Thursday in an email to Bloomberg. “The investigation reached that conclusion already — this is why I am not the one sitting during the Silk Road trial, and I can only feel defense attorney Joshua Dratel (is) trying everything he can to point the attention away from his client. I have nothing to do with Silk Road and do not condone what has been happening there.”

Der-Yeghiayan, who was investigating from Chicago, testified that in May 2013, Homeland Security in Baltimore seized more than $3 million from the account of a Karpeles company, Mutum Sigillum.

In July 2013, representatives of the Baltimore office met with Karpeles’ lawyers and were told he was willing to tell the government who ran Silk Road. Outside the jury’s presence, Dratel told U.S. District Judge Katherine Forrest, who’s overseeing the trial, that Karpeles was seeking to avoid a criminal charge by pointing the finger at Ulbricht.

Forrest dismissed the jury of six men and six women early so that she could consider arguments from both sides over what additional evidence they may hear about the government’s investigation of Karpeles. Der-Yeghiayan will continue his testimony when the trial resumes next Tuesday.

Ulbricht faces as long as life in prison if convicted. The trial started Tuesday and may last as long as six weeks.

Der-Yeghiayan said agents maintained at least a dozen buyer and seller accounts on the illicit website, taking over the online identities of cooperating witnesses including a woman who went by the name “Scout.” The agent said investigators often didn’t know who they were dealing with. In June 2013, Der-Yeghiayan expressed frustration over the uncertain identities on Silk Road.

“Sheesh, who’s on first?” he asked.

The government claims more than 1 million drug sales were done through Silk Road. The site barred ads for child pornography, weapons of mass destruction, counterfeit currency, murder-for-hire and stolen credit cards, Der-Yeghiayan said.

In testimony Thursday and the day before, Der-Yeghiayan told jurors he worked as a Silk Road site administrator for several months as part of the investigation, communicating online with Dread Pirate Roberts and coworkers known as Libertas, Samesamebutdifferent and Inigo, without knowing their real identities. Der-Yeghiayan said he used the name Cirrus, concealing the fact that he was a law enforcement agent.

Der-Yeghiayan testified that Silk Road’s Dread Pirate Roberts used a unique cryptographic key consisting of a long string of characters to identify himself to users of the site. In his questioning, Dratel suggested the key could be passed from one person to another, like a car key or file key.

Silk Road was operated on the Tor network, which routes communications through a series of computers to allow users to be anonymous.


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