Update: Defense counsel have filed their response to the government's motion, which is described in the final section of this report.

NEW YORK—The Silk Road drug-trafficking trial continues Tuesday, and late Monday federal prosecutors filed papers (PDF) in federal court seeking to block a line of questioning that defendant Ross Ulbricht's lawyer began last week.

Ulbricht, who stands accused of running the online drug marketplace known as Silk Road, has admitted he built the website as a "free market experiment." When his trial opened on Tuesday, however, his lawyer Joshua Dratel said the market was run by unnamed others who "lured him back" and turned Ulbricht into the "ultimate fall guy" by October 2013, when he was arrested.

Later in the week Dratel cross-examined Jared Der-Yeghiayan, a special agent for Homeland Security, inquiring about the man's earlier suspicions that it was actually Mt. Gox owner and CEO Mark Karpeles who ran the Silk Road. Karpeles, who is involved in a complex bankruptcy following the collapse of the Mt. Gox Bitcoin exchange, has vehemently denied he had anything to do with Silk Road.

Court ended early on Thursday because the government objected to Dratel's questioning, saying it was eliciting hearsay evidence. Now prosecutors have filed papers making their objections more clear. Tomorrow, observers will likely find out how far Dratel will be able to go in pursuing his theory when US District Judge Katherine Forrest makes a ruling one way or the other.

"Unfair prejudice"

Dratel is questioning Der-Yeghiayan about his beliefs at an earlier point in the investigation. Der-Yeghiayan can't get on the stand and testify "about his current belief that the defendant is guilty," rather he has to stick to the evidence gathered, prosecutors point out. Similarly, defense lawyers shouldn't be allowed to elicit testimony as to what he might have believed earlier in the investigation.

The government specifically argues Dratel should be barred from asking about information relating to Silk Road that may have been offered by Karpeles' lawyer. That information could have been offered when Karpeles was eager to shut down an investigation against him by another Homeland Security office—not for running Silk Road, but for running Mt. Gox as an unlicensed money exchange.

Prosecutors also ask Forrest to set strict limits on how far Dratel should be allowed to go with his theory that Karpeles played a key role in Silk Road, which could lead to "unfair prejudice." "[T]he Court should carefully scrutinize any 'alternative perpetrator' evidence the defense seeks to introduce in this case," write government lawyers. "In order to introduce evidence that Mr. Karpeles was the 'alternative perpetrator' in this case, the defense must offer evidence of a direct and substantial connection between Mr. Karpeles and Silk Road based on actual fact—rather than on the incomplete impression of the evidence SA Der-Yeghiayan had at a past point in the investigation."

Discarded Theory

Der-Yeghiayan clearly had his suspicions about Karpeles, but the government's new filing lays out a clear timeline about how and why he ultimately dropped that path.

An early website on the open Web that advertised Silk Road was called SilkRoadMarket.org, and it was registered through Karpeles' Web hosting company. But it was a Karpeles customer that registered it, under the false name "Richard Page," along with a fake address in Garden Grove, California. "Page" paid for the domain and for Web hosting with Bitcoin.

In mid-2013, the Baltimore office of Homeland Security Investigations (HSI) tried to set up a meeting with Karpeles in Guam, but it "never materialized."

The government also addressed another point Dratel brought up on Thursday, which is that bitcointalk.org—which Der-Yeghiayan at one point believed was linked to Karpeles—was run with the same software as Silk Road. But Der-Yeghiayan never found any hard evidence that Karpeles was connected to bitcointalk.org, and in any case it isn't meaningful that the two sites happened to be run with the same "free, publicly available software," says the government.

Another suspect

A few hours after the Monday filing, Dratel responded [PDF], saying the government's request should be denied. He writes:

In this case ... the government itself, in the person of SA Der-Yeghiayan and others, provided that nexus via an analysis of documentary and other materials, and the defense, via cross-examination, is simply cataloguing the bases for that nexus. Ultimately, the government’s argument is about the weight of the evidence, which of course is for the jury to determine. The government provided 5,000 pages of material pursuant to 18 U.S.C. §3500 for SA Der-Yeghiayan, a substantial portion of which was devoted to government’s investigation of Mr. Karpeles. It is inconceivable that the government did not anticipate this line of cross-examination. Yet it did not make a motion in limine, did not object to defense counsel’s opening, and did not object during a significant portion of the cross-examination of SA Der-Yeghiayan. Pointing to an alternative perpetrator is a defense that has been endorsed by the Supreme Court and other courts time and again, and Mr. Ulbricht’s defense is utilizing evidence to that effect consistent with the rules of evidence and Mr. Ulbricht’s constitutional right to present a defense.

In a footnote, the Dratel also points out the government put him in a situation where it's difficult to get the direct evidence it insists on, since the 5,000 pages of documents were produced "within two weeks of trial." That timing "precludes, for all practical purposes, identifying, locating, and summoning witnesses with respect to the statement."

Dratel's letter also suggests Karpeles isn't the only earlier suspect that he'd like to talk about. The mountain of documents the government produced related to Der-Yeghiayan's investigation includes "detailed information about another suspect he investigated in 2012-2013... a suspect whose name was provided to DPR in April 2013 via the Silk Road "marketplace"'s private message system, and therefore also had abundant opportunity to evade detection by late September 2013." That suspect's "technical expertise and background" are relevant to the case, writes Dratel, as are the observations agents made about "language analysis" and "political orientation." He concludes: "Counsel intends to explore that in cross-examination of SA Der-Yeghiayan as well."