How top drug dealer on dark net's Silk Road was working with FBI for months before huge bust

Steven Sadler - who operated as the Silk Road's top distributor began working with federal authorities after he was arrested in possession of drugs and firearms in July

The information he handed over led to the arrest of the alleged mastermind behind Silk Road - Ross William Ulbricht earlier this month



The infamous and secretive online drug marketplace called Silk Road was finally shut down after the sites top dealer began secretly cooperating with FBI agents new court records show.



Steven Sadler, who operated on the cyber-underworld's 'darknet' under the username 'Nod' was ranked in the 'top 1 percent of sellers' on Silk Road and provided his customers with wholesale shipments of drugs - sent through the US Postal Service.



Sadler, who is a drug addict, agreed to work with federal investigators when his Bellevue, Seattle home was raided on July 31st by Homeland Security who seized heroin, cocaine, and methamphetamine, a .45 caliber pistol, cash, and 'vacuum and heat-sealing equipment' from Sadler’s residence, according to court records seen by the Smoking Gun.



Criminal network: Ross William Ulbricht, 29, has been arrested in San Francisco over the alleged drug-dealing activities of his website Silk Road

The cooperation of Sadler enabled authorities to arrest the so-called 'digital don' behind Silk Road, Ross William Ulbricht, 29, who is accused of running the website behind a military-style encryption code that enabled it to become the 'eBay' of the Internet's black market.

While the details of Sadler's cooperation were not clear, it is thought that he would have provided federal agents customer lists, or financial records and possibly confirmed the identity of Ulbricht - as part of their case against him.

At its peak, the Silk Road, which was designed to have a customer-friendly interface, boasted nearly one million customers and had $1.2 billion in annual sales.



FBI Agent Christopher Tarbell of the FBI's cyber-crime unit in New York called Silk Road 'the most sophisticated and extensive criminal marketplace on the Internet today,' according to USA Today.

Ulbricht appeared in court in San Francisco in early October, where he denied all charges against him, after the nearly two-year-long investigation, which was finally cracked with the help of Sadler.

Federal agents arrested Sadler after he was tracked for one year after investigators honed in on him and a female friend, Jenna M. White.



A complaint filed in federal court in Seattle says investigators identified Sadler and White after asking postal clerks in SeaTac to be on the lookout for a woman identified in surveillance video as being associated with certain suspect packages.



One clerk managed to get the license plate of her car, which authorities said they traced to Sadler and White's condominium in Bellevue.



Sadler and White allegedly used up to 40 different post offices to distribute their narcotics across the country.

Silk Road allegedly worked as an eBay for the black market - selling cocaine and marijuana, drugs, credit card numbers, instructions on how to hack an ATM and other illegal goods

Despite apparently aiding authorities, Steven Lloyd Sadler of Bellevue and Jenna M. White of Renton have both been released from custody pending court appearances later this month.



The secret Silk Road website gained notoriety as a black market drug bazaar that accepted bitcoins, an electronic currency, before federal authorities shut it down earlier this month.



Silk Road used an underground computer network known as "The Onion Router" or "Tor" that relays computer messages through at least three separate computer servers to disguise its users.



THE DEEP WEB: WHAT IS TOR? Tor - short for The onion Router - is a seething matrix of encrypted websites that allows users to surf beneath the everyday internet with complete anonymity.



It uses numerous layers of security and encryption to render users anonymous online.



Normally, file sharing and internet browsing activity can be tracked by law enforcement through each user's unique IP address that can be traced back to an individual computer.



The Tor network on the Deep Web hides the IP address and the activity of the user.



Most of the Web's information is buried far down on dynamically generated sites, unable to be found or seen by traditional search engines - sites or pages don't exist until created as the result of a specific search.



An Internet search is like dragging a net across the surface of the sea - a great deal of information is caught, but a majority is deep and therefore missed.

Ulbricht, is a 29-year-old software engineer and chemistry graduate, is also accused of ordering a murder - this one for $150,000 and is awaiting extradition from California to New York City on trafficking charges.



The FBI shut down the site on October 2nd after infiltrating it. The so-called Deep Web or Dark Web hidden website allegedly worked as an eBay for the black market - selling cocaine and marijuana, drugs, credit card numbers, instructions on how to hack an ATM and other illegal goods.



The Baltimore Sun reports that a federal indictment says a Maryland-based federal agent infiltrated Silk Road, posing as a major drug distributor who was looking for high end customers.



After selling a kilogram of fake cocaine to one of Ulbricht's co-workers using untraceable BitCoin currency, Ulbricht later confided in the agent that the employee had run off with his money.



He allegedly struck a deal with the agent - who he believed to be a major drug distributor - to have the employee tortured so that he would return the money and learn a lesson.



Later, after the former employee was arrested, Ulbricht allegedly send the undercover agent another message: 'can you change the order to execute rather than torture?'



He explained the employee 'was on the inside for a while, and now he's been arrested, I'm afraid he'll give up info.'



The feds say Ulbricht wired $80,000 to the agent.

Ross Ulbricht was also accused of hiring an undercover FBI agent to kill two people although these charges were later dropped

In exchange, federal investigators staged a torture scene for the employee and made it look like he had been beaten and then killed.



After receiving 'proof of death' from the undercover agent, Ulbricht responded he was 'a little disturbed, but I'm OK.'



His lawyer Brandon LeBlanc, a public defender, declined to comment.



A Google+ account for Ulbricht had this post on April 9 last year: 'Anybody know someone that works for UPS, FedEX, or DHL?'



Federal prosecutors in New York charged Ulbricht with one count each of narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy, the filing said.

Dangerous drugs: A screengrab of of the Atlantis online marketplace shows some of the illegal drugs on offer, including heroin, cannabis, MDMA and LSD

'Silk Road has emerged as the most sophisticated and extensive criminal marketplace on the Internet today,' FBI agent Christopher Tarbell said in the criminal complaint.



The site – described as a 'sprawling black-market bazaar' - was used by 'several thousand drug dealers' to sell 'hundreds of kilograms of illegal drugs,' he said.



The site, which has operated since early 2011, also offered tutorials on hacking ATM machines, contact lists for black market connections and counterfeiters, and guns and hit men for sale, according to the charges.



More than 900,000 registered users of the site bought and sold drugs using the digital currency Bitcoin.



In recent media reports about the growing popularity of Bitcoin, the Silk Road website has emerged as part of a darker side to the use of digital currencies.



COINING IT IN: WHAT IS BITCOIN? It's a piece of data locked in an internet-based network by a complex equation.



Once released it can be traded and used like money online and can be purchased with real cash. Many websites are now taking Bitcoins as a form of currency.



As well as digital currency, Bitcoin miners enjoy the competitive nature of unlocking the coins.



Famous fans include the Winklevoss twins - famous rivals of Facebook founder Mark Zuckerberg - who own around 1 per cent of Bitcoins - currently worth around $11million.



It has been dismissed by some as a Ponzi Scheme and touted by others as the future of money. It is not centrally controlled and it's unique and complex set up means the market cannot be altered or hacked, according to the developers.



There are 21 million coins predicted to last until 2140 and their finite nature means they perform more like a commodity, such as gold.



The coins first emerged in 2008 and launched as a network in 2009.



They were introduced by an obscure hacker whose identity is a mystery but is known as Satoshi Nakamoto, which is thought to be a pseudonym.



Users choose a virtual wallet from one of the various providers which enables them to receive, give and trade coins from other users.

Bitcoins can be bought from specialist currency exchanges and online marketplaces

Through the site, according to the charges, users could buy drugs and have them shipped to an address. Investigators, posing as regular users on Silk Road, made more than 100 purchases of drugs, which were shipped to the New York area.



According to the complaint, Ulbricht, who shortened his alias from Dread Pirate Roberts to DPR when posting on Silk Road's forums, operated the site from San Francisco.



At times, he used computers at Internet cafes to access the servers running the website, which employed several technological tools to mask the location of its servers and the identities of its administrators and users.



The complaint described other aspects of Ulbricht's online presence: In a Google+ profile, he described himself as a fan of libertarian economic philosophy and posted videos from the Ludwig von Mises Institute, an Auburn, Alabama-based economics institute.



Reached by phone in Austin, Texas, Ubricht's parents said they had not known what their son was doing in San Francisco.



'He is a really stellar, good person and very idealistic,' said Ulbricht's mother, Lyn Lacava.



'I know he never meant to hurt anyone.'



Ulbricht's father Kirk confirmed his son had received a master's in material sciences from Pennsylvania State University. His thesis was titled: Growth of EuO Thin Films by Molecular Beam Epitaxy.



'He did amazing research on crystals and exotic materials they hoped would have some use for humans, Ulbricht said. 'But it was very theoretical stuff.'



The complaint against Ulbricht describes a darker side. During one correspondence with a Silk Road user, Ulbricht tried to call out a hit on another user with whom he had a dispute.



That user, known online as FriendlyChemist, was threatening to expose the identities of thousands of Silk Road users unless Ulbricht sent him money.

Time's up: The FBI has shut down Silk Road, an anonymous Internet marketplace for illegal drugs like heroin and cocaine and criminal activities such as murder for hire

'I wouldn't mind if he was executed,' Ulbricht wrote, offering personal details about his foe, including the fact that he was a married father of three, and the names of the city and province where he lived.



In a later post, Ulbricht wrote: 'He is threatening to expose the identities of thousands of my clients.'



'This kind of behavior is unforgivable to me. Especially here on Silk Road, anonymity is sacrosanct.'



During the raid, authorities seized $3.6 million worth of bitcoin, which was used instead of cash or credit cards to complete transactions on Silk Road.



The charges against Ulbricht said his website generated sales of more than 9.5 million bitcoin, roughly equivalent to $1.2 billion.



Authorities seized the currency by taking control of the digital 'wallets' Silk Road used to store bitcoin



The raid on Wednesday was not the first time the U.S. government has made arrests related to Silk Road.



Earlier this year, authorities in South Carolina arrested Eric Daniel Hughes, known on Silk Road as 'Casey Jones', and charged him in state court with drug possession. The Drug Enforcement Agency seized units of bitcoin, which Hughes allegedly used to purchase drugs from the online market.



Bitcoin, which has been around since 2008, first came under scrutiny by law enforcement officials in mid-2011 after media reports surfaced linking the digital currency to Silk Road.

