Silk Road Update: Federal Prosecutors File Separate Forfeiture Complaint
There have been two meaningful developments.
First, Mr. Ulbricht — who had been arrested in San Francisco based on the federal criminal complaint from New York — waived his right to further hearings in San Francisco and agreed to immediate transfer to New York. That means he waived the right to an identity hearing, at which the feds would have to prove that he's the same Ross Ublricht charged in New York (though not that Ross Ulbricht is actually Dread Pirate Roberts; an identity hearing only determines if the defendant before the court is the same person identified in the charging document, not whether they did what the complaint says they did.) He may or may not have waved a probable cause hearing. I say "may or may not" because if the feds in New York secured an indictment against him and provided it to the court in San Francisco, he would no longer have a right to a separate probable cause determination. I haven't been able to determine if that's what happened because the federal criminal case in New York isn't available on PACER yet.
Second, newly unsealed documents show that the U.S. Attorney's Office for the Southern District of New York has filed a separate forfeiture complaint against Ulbricht. The docket for that case is here. The forfeiture complaint is here. The prosecutor's letter asking that those documents be unsealed is here. The exhibit to the forfeiture complaint is the criminal complaint, linked above. The documents reveal that the feds filed the forfeiture complaint on September 30, 2013, a few days after the criminal complaint.
The United States is suing not just Ulbricht himself, but suing things, or as lawyers insufferably say, proceeding "in rem." "In rem" suits "sue" items as a legal fiction, seeking to extinguish anyone's claim to that item so that the government can take it. This leads to absurd-sounding case names. In this case the feds proceed against:
ANY AND ALL ASSETS OF SILK ROAD,
INCLUDING BUT NOT LIMITED TO THE
SILK ROAD HIDDEN WEBSITE AND ANY
AND ALL BITCOINS CONTAINED IN
WALLET FILES RESIDING ON SILK ROAD
SERVERS, INCLUDING THE SERVERS
ASSIGNED THE FOLLOWING INTERNET
126.96.36.199; AND 188.8.131.52;
The affidavit in support of the criminal complaint had to establish probable cause for arrest, so it was fairly detailed and described evidence. The forfeiture complaint more closely resembles a civil complaint, and mostly describes allegations. The forfeiture complaint is considerably more blunt about the feds' position that the entire Silk Road enterprise is inherently criminal:
13. Not only are the goods and services offered on the
SILK ROAD HIDDEN WEBSITE overwhelmingly illegal on their face,
but the illicit nature of the commerce conducted through the
website is openly recognized in the Silk Road online community.
For example, information available on the SILK ROAD HIDDEN
WEBSITE provides extensive guidance to users concerning how to
conduct transactions on the site without being caught by law
Explaining how forfeiture law works is beyond the scope of this post. The important points to note are that (1) the feds are proceeding against the property and seeking to forfeit it on the theory that it is the proceeds of the crimes charged in the criminal complaint, (2) the feds seek not just the specified property but assets derived from it — like, say, a car bought with the money, and (3) the feds are pursuing Ulbricht not just to extinguish his right to the property, but for money in an amount equaling the value of all illegal transactions in the case ("Accordingly, the Defendant in Personam is liable to the United States for the value of the funds and monetary instruments involved in the transactions, in an amount to be determined at trial.").
What if some of those Bitcoins are yours, not Ulbrichts? What if Silk Road is holding some of your Bitcoins as part of some transaction? Why, all you have to do is show up and make a claim for them — in a case in which the government is saying that all or substantially all of the transactions through Silk Road are federal crimes. Bring a toothbrush.
Despite the fact that the feds have filed this complaint as part of a criminal investigation and the complaint asserts that the money was involved in crime, the forfeiture case is nominally a civil proceeding, triggering dramatically truncated rights. Such forfeiture cases are often — though not always — stayed pending resolution of the companion criminal case. That way defendants don't have to face the civil discovery process, which would force them to choose between giving up their Fifth Amendment right to remain silent or giving up the property. Federal courts often — though not always — do a better job than state courts of protecting the constitutional and procedural rights of defendants. But forfeiture cases have only a smirking acquaintance with due process.
Best estimate: this forfeiture case will be stayed pending resolution of the criminal case.
Edited to add: In the comments, this remark from Scott Greenfield puts it very well:
This seems an opportune time to add, for the benefit of readers who weren't around in the 1980's, that the law pertaining to in rem forfeitures developed in the context of narcotics seizures. Prior to that, the legal maxim, the law abhors a forfeiture, was the rule, and judges were generally antagonistic to forfeiture proceedings.
In the 80's, with the crack outbreak, the feds began aggressively seeking forfeiture of proceeds, substitute proceeds and instrumentalities of crime. At the time, no one (except those of us actively engaged in the drug and forfeiture defense ) gave a damn, and the law that developed was quite harsh. Efforts to challenge in rem forfeitures on constitutional grounds were uniformly rejected. No one (again, but us) uttered a peep. After all everybody hated those evil crack dealers.
And that is the state of law that now exists for use against others today. Of course, now that it's being applied against people other than crack dealers, people are taking notice. Sadly, it's a little too late to ask some very good questions about how it's possible that this nation can tolerate in rem forfeiture, given the wealth of precedent developed in the past 30 years.
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