Bitcoin exchanges reportedly probed over link to Silk Road

Several exchanges, including shuttered Mt. Gox, have received subpoenas probing possible ties to the online drug marketplace, the Wall Street Journal reports.


US authorities are ramping up their scrutiny of Bitcoin, looking at possible ties between several exchanges and the defunct online drug market Silk Road, the Wall Street Journal reported on Monday.

Several Bitcoin exchanges, including now-closed Mt. Gox, received subpoenas from Manhattan federal prosecutors this winter that sought customer-transaction logs and materials related to solicitation of investors, sources told the Journal. It wasn't immediately clear which other Bitcoin companies were the target of the investigation, which sources said is still in an early stage.

It was also not clear whether the investigation was related to subpoenas reportedly issued in February to a handful of Bitcoin exchanges and other companies that deal in the virtual currency. Those subpoenas, which also came from the US Attorney's office, focused on the businesses' handling of distributed denial of service attacks that forced Mt. Gox and other exchanges to suspend withdrawals, according to Reuters.

CNET has contacted the US Attorney Office for the Southern District of New York for comment and will update this report when we learn more.

Once one of the largest and most popular Bitcoin exchanges, Mt. Gox suspended customer withdrawals and filed for bankruptcy protection in February after discovering the theft of nearly 750,000 customer bitcoins, as well as 100,000 of the exchange's own bitcoins -- worth nearly $500 million at the time. Despite orders to appear in the US to answer questions regarding the Tokyo-based exchange's sudden closure, Mt. Gox CEO Mark Karpeles was " not willing to travel to the US," Mt. Gox attorneys wrote.

The virtual currency, which is unregulated and allows for anonymous, untraceable transactions, sprang up in 2009. In the past couple of years, it has been the subject of wild rollercoaster value fluctuations, skyrocketing from an exchange value of $2 a share in 2011 to about $1,000 last fall.

Before it became a darling of currency speculators, Bitcoin attracted the attention of Sens. Charles Schumer of New York and Joe Manchin of West Virginia. The pair wrote a letter in 2011 to Attorney General Eric Holder, highlighting the role Bitcoin played in Silk Road, an online marketplace that allowed the anonymous sale of illegal merchandise.

In February, federal prosecutors announced the forfeiture of $28 million in Bitcoins they had seized from Silk Road. Before the FBI seized Silk Road last October, nearly 1 million anonymous users had used the marketplace, where purchases were typically made with the virtual currency Bitcoin, federal prosecutors said.

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