U.S. probed Mt. Gox CEO as possible Silk Road mastermind: agent

NEW YORK (Reuters) - A U.S. agent investigating Silk Road told jurors at a trial of accused operator Ross Ulbricht that he believed in 2013 that the former chief of the Mt. Gox bitcoin exchange, Mark Karpeles, may have been the mastermind behind the black market website.

Questioning of Jared Der-Yeghiayan, a U.S. Department of Homeland Security special agent, showed Ulbricht's defense was seeking to cast doubts over the allegation that Ulbricht was Silk Road's operator, known as "Dread Pirate Roberts."

Ulbricht's lawyer Joshua Dratel pointed to Karpeles, who was CEO of Mt. Gox. The company filed for bankruptcy a year ago after saying it lost nearly half a billion dollars worth of virtual coins.

"Our position is he set up Mr. Ulbricht," Dratel said outside jurors' presence.

Karpeles, who was never charged, denied he had anything to do with Silk Road.

"This is probably going to be disappointing for you, but I am not and have never been Dread Pirate Roberts," he said in an email sent to Reuters and other media.

"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 trying everything he can to point the attention away from his client."

Dratel, in opening statements on Tuesday, said that while Ulbricht created Silk Road, he handed it off to others and became their "fall guy."

Der-Yeghiayan testified on Thursday in Manhattan federal court that as late as August 2013 he believed that Karpeles actually controlled the website, where drugs and illicit goods could be bought anonymously.

Under questioning by Ulbricht's lawyer, Der-Yeghiayan said that as part of a search warrant for Karpeles' Google email account he had said there was probable cause to believe he controlled Silk Road.

It was not clear from the trial how Der-Yeghiayan's views had since changed. He testified on Wednesday that an Internal Revenue Service agent had flagged Ulbricht that September as Dread Pirate Roberts’ possible alter ego.

Silk Road, which took payment in bitcoin, operated from 2011 to October 2013, generating $200 million in drug sales, prosecutors say.

Ulbricht, 30, faces seven counts including operating a continuing criminal enterprise and conspiracy to commit narcotics trafficking.

The investigation of Karpeles was separate from the events leading to the hacking attack on Tokyo-based Mt. Gox last year that led to its filing for bankruptcy.

Der-Yeghiayan said that at the time he was investigating Karpeles, investigators theorized Silk Road was operated in part to drive bitcoin prices up.

The August 2013 search warrant followed earlier grand jury subpoenas and another search warrant that Der-Yeghiayan said were issued targeting companies linked to Karpeles as part of the Silk Road probe.

But in July 2013, Der-Yeghiayan, who worked in Chicago, testified that over his objections, federal prosecutors in Baltimore met with Karpeles as part of an investigation over unlicensed money transfers.

Exact details of the meeting were unclear and are expected to be part of Der-Yeghiayan's testimony when trial resumes Tuesday.

Dratel sought to elicit testimony that Karpeles had offered to "tell the government who he thought runs Silk Road" to avoid charges.

The case is U.S. v. Ulbricht, U.S. District Court, Southern District of New York, No. 13-06919.

(Additional reporting by Ritsuko Ando in Tokyo and Emily Flitter in New York; Editing by Leslie Adler and Lisa Shumaker)