No Mastermind

01.16.15 2:22 AM ET

Exclusive: Bitcoin Tycoon Mark Karpeles Denies Being Dread Pirate Roberts

The feds say Ross Ulbricht is the notorious mastermind behind defunct online drugs and weapons seller Silk Road. Ulbricht blames Mark Karpeles—who tells The Daily Beast he’s innocent.

Will the real “Dread Pirate Roberts” please stand up?

The U.S. government says Ross Ulbricht was the pseudonymous proprietor of the website Silk Road, which used the virtual currency Bitcoin for illegal transactions in drugs and arms. But in a Manhattan federal courtroom Thursday, the defense in Ulbricht’s trial alleged that Mark Karpeles, former CEO of what was once the world’s biggest Bitcoin exchange, Mt. Gox, was the real “Dread Pirate Roberts.” In an exclusive interview with The Daily Beast, Karpeles denied the accusations and says he cooperated with U.S. federal law enforcement.

Launched in 2011 and shut down in 2013, Silk Road was known as the Amazon or eBay of the “darknet,” an anonymous, Bitcoin-enabled marketplace where “buying drugs online became safe, easy, and boring.” The site boasted an estimated 900,000 users and generated more than $1 billion in annual sales before being replaced by other “darknet” sites.

Ulbricht, who was arrested in October 2013, has been charged with drug trafficking, criminal enterprise, aiding and abetting distribution of drugs over the Internet, computer hacking, and money laundering, and faces the equivalent of life in prison.

During cross-examination Thursday, Department of Homeland Security Special Agent Jared Deryeghiayan said he pursued Karpeles as the suspected owner and operator of Silk Road in 2012 and 2013.

Deryeghiayan’s pursuit of Karpeles even led to conflict within the agency’s Homeland Security Investigations team (HSI), of which the agent was a part, he indicated Thursday. While Deryeghiayan monitored Karpeles from Chicago, an HSI team in Baltimore seized roughly $3 million from Karpeles’s Mt. Gox subsidiary in May 2013. Karpeles was accused of running an unlicensed and illegal money-transfer business.

Karpeles acknowledged to The Daily Beast that HSI agents met with his lawyers in 2013. Karpeles said he shared information with the U.S. government but said he could not comment on what information was shared.

Deryeghiayan reportedly believed the Baltimore division had dropped the ball on proving Karpeles was the owner of Silk Road and wrote an angry email to fellow DHS staffers protesting the Baltimore agents’ activities.

In an interview, Karpeles said he also spoke to the authorities when he discovered 50 fake passports being used to set up Mt. Gox accounts, and he acknowledged owning a hosting service used by part of the Silk Road network. “Part of the Silk Road network, silkroadmarket.org, was using a hosting service that I still own for one of my clients. I cannot disclose their name for obvious reasons,” he said.

“This is probably going to be disappointing for you, but I am not Dread Pirate Roberts,” Karpeles said in a separate statement. “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.

“I have nothing to do with Silk Road and do not condone what has been happening there. I believe Bitcoin [and its underlying technology] is not meant to help people evade the law, but to improve everyone’s way of life by offering never-thought-before possibilities.”

Karpeles expressed concern that revealing too much about his knowledge of the Silk Road investigation could place former employees and others in danger.

Sources close to the Department of Homeland Security told The Daily Beast that Karpeles has been eliminated as a suspect in the running of Silk Road and that he has been relatively cooperative with the government. The sources added that they believe some of his clients were involved in running the website.

Karpeles, who is now CEO of Tibanne Co., added with some mirth following repeated attempts to ask him if he was the Silk Road founder: “I’m not a pirate nor a fraudster. Nor, for the record, am I the creator of Bitcoin, the elusive Satoshi Nakamoto.”