TIME Management

6 Charts Showing Tech’s Gender Gap Is More Complicated Than You Think

See why it's so hard to break the glass ceiling in Silicon Valley

 

Several of Silicon Valley’s biggest companies have released a series of diversity reports revealing how few women held the companies’ top jobs — or jobs in general. Now a recent string of lawsuits is suggesting that the fix isn’t simply to recruit more women — what about the women who are already employed? Are they being held back from rising up?

That’s the key question in investing partner-turned-Reddit CEO Ellen Pao’s ongoing lawsuit against her former employer, Kleiner Perkins, a highly-established venture capital firm based in Menlo Park, California. The jury in Pao’s case began hearing closing arguments this week, and will soon decide whether it was gender bias that prevented Pao from being promoted to a higher-ranking partner, or, as Kleiner Perkins’ lawyer argued, whether Pao is simply “[blaming] others for her own failures.”

Adding to the scrutiny of Silicon Valley’s treatment of women are two other high-profile gender discrimination lawsuits against Twitter and Facebook, both recently filed by former female employees.

A gender gap in the workplace, particularly in Silicon Valley, is old news. But Kleiner Perkins isn’t kind of Silicon Valley company we’re used to hearing about. By suing a venture capital firm, Pao raises a important point — the gender gap could be a problem at the firms that are often funding Valley companies, too. (In addressing this claim, Kleiner Perkins said in a trial brief last month it has “long been a supporter of women entrepreneurs.”)

According to a report by Babson College in 2013, gender bias reveals itself in the patterns of venture capital investments. (The study was sponsored by Ernst & Young and the Diana Project, both of which prioritize workforce diversity.) Upon analyzing these patterns, the study found that businesses with all-male leadership teams are four times as likely to receive venture capital funding as teams with even one woman.

That apparent gender bias might explain why only 3% of venture-funded businesses are led by women, according to Babson College’s report, which surveyed 6,517 of these businesses. About one-third of all U.S. businesses are led by women, according to the U.S. Small Business Administration:

 

Curiously, the percentage of female venture capital investors (11%) is almost equal to the percentage of female executives among Silicon Valley’s Top 150 companies (10.8%) — though this is merely a correlation. (These data points come respectively from the latest Venture Census and a 2014 report by Fenwick & West LLP, a global law firm with clients including Facebook and Google.)

Even if these two gender gaps are wholly unrelated, it’s still worth noting that Silicon Valley appears to have an especially pronounced gender diversity problem when compared to the S&P 100. The S&P 100 is a non-industry specific stock index comprised of companies with the 100 leading U.S. stocks, many of which are outside Silicon Valley:

 

So it’s an undeniable truth that Silicon Valley has a gender diversity problem. But the question of whether the gap has started to close is a bit trickier.

Take, for example, the following chart from Fenwick’s report. It shows the percentage of women in the highest-ranking positions in Valley’s top 150 companies (“SV 150″) between 1996 and 2014. By looking at the upward trends, you could say that gender diversity in Silicon Valley has improved:

But don’t jump to any conclusions. Once again, when you compare the SV 150 to the S&P 100 benchmark, gender diversity in the Valley appears to be problematic. Take a look at the following chart, which shows the top Valley companies had lower percentages of women than the S&P 100 in every single leadership position except President/COO and General Counsel in 2014:

There’s yet another caveat: If you examine only the very top Valley companies, the gender diversity problem is cast in a much better light. After all, Google just named a female CFO this week, while Facebook COO Sheryl Sandberg, Yahoo CEO Marissa Mayer and Hewlett-Packard CEO Meg Whitman are proof of change among tech titans.

The chart below shows gender diversity in the Valley’s top 15 companies (“SV15″), like Google and HP, has rapidly improved. Female representation was remarkably strong in a several positions in 2014, including President/COO and CFO. But other positions, like Chair, were still entirely male in 2014 — just like in 1996:

These mixed messages regarding the depth of Silicon Valley’s gender problem are surfacing on both sides of Pao’s trial. Kleiner Perkins’ lawyers, for example, argued that 20% of its partners are women. That’s much higher than the average of 6%, according to Babson College’s report, which surveyed 139 venture capital firms’ partners in 2013. Kleiner Perkins’ top ranking female partner, Mary Meeker, even testified against Pao, arguing the company promoted women based on their merits.

But Pao, too, had an arsenal of numbers at the ready. In addition to qualitative evidence of gender bias — like claims of all-male dinner parties — Pao’s legal team also cited the superior performance of investments made by the company’s female investors, including Pao. A female partner at Kleiner Perkins once reportedly even constructed a matrix comparing women’s and men’s investments to drive this point home.

The jury in Pao’s trial will soon put an end to these arguments — but the gender gap debate will surely continue outside the courtroom. Even if the jury sides with Kleiner Perkins, Pao’s closely watched trial remains a warning for the larger, male-dominated business industry to reevaluate the treatment of women in their companies. There’s a business incentive at play here, too: Companies with female leaders appear to be performing unusually well, according to a recent study of women-led companies by Karen Rubin, director of product management at the algorithm development site Quantopian. In her study, Rubin showed how the women-led Fortune 1000 companies — there are only 27 currently — posted greater cumulative returns than those of SPY, a tracker of the S&P 500 stock index, which Rubin used as a benchmark:

Women Leader Fortune 1000

In fact, it seems that these female-run companies have outperformed the male-dominated benchmark even more often since the financial crisis of 2008-09. That’s a gender gap to be proud of — and one that can’t be ignored.

Read next: 5 Best Ways Men Can #LeanInTogether to Help Women Get Ahead

Listen to the most important stories of the day.

TIME legal

Twitter Faces Gender Discrimination Lawsuit by Former Female Engineer

Facebook and venture capital firm Kleiner Perkins are facing similar claims

A former Twitter employee has sued the company for gender discrimination while two other high-profile sexism lawsuits unfold in Silicon Valley.

Software engineer Tina Huang claimed in a proposed class action lawsuit filed Thursday that Twitter’s promotion process unfairly favors men, Reuters reports. Huang said the company has no formal procedures for granting promotions, and instead relies on a “shoulder tap” process that explains why few women are in high-level engineering positions.

A Twitter spokesperson said Friday, “Twitter is deeply committed to a diverse and supportive workplace, and we believe the facts will show Ms. Huang was treated fairly.”

The lawsuit against Twitter follows similar claims made against Facebook last week by Chia Hong, who accused Facebook of wrongful termination in 2013 after allegedly being harassed based on her gender, race and Taiwanese nationality. Facebook has denied Hong’s accusations.

Hong’s lawyers are also involved in a similar case against venture capital firm Kleiner Perkins, which former employee and current interim Reddit CEO Ellen Pao sued for gender discrimination. A judge upheld Pao’s claims on Saturday, saying “There is sufficient evidence from which a reasonable juror could conclude that Kleiner Perkins engaged in intentional gender discrimination.”

[Reuters]

TIME 2016 Election

Everything We Know About Hillary Clinton’s Email

And what we don't know

The new political headache afflicting Hillary Clinton is all about email.

The New York Times reported Monday that the presumptive Democratic presidential candidate had exclusively used a private email account for her government business during her tenure as Secretary of State, rather than a government email account. And an Associated Press report Wednesday said Clinton used her own email servers, rather than a third-party provider like Gmail or Yahoo Mail. That’s raised questions about whether Clinton was making a deliberate attempt to prevent her messages from being disclosed by open records requests or subpoenas.

Clinton’s campaign has said she followed both “letter and spirit of the rules,” but the snafu has played into Republican criticisms of her as secretive and politically calculating. Clinton tried to contain the damage in a tweet late Wednesday saying she supports the release of more emails.

Here’s everything to know about the controversy.

Wait. What’s the big deal?

A top U.S. diplomat working only on a personal email account raises an obvious question: Did Clinton stay off government email to hide something? Federal regulations are meant to prevent a situation in which officials, by keeping emails “off the record,” could thwart information requests made by the public or the government. When Clinton took office in 2009, federal rules required that government employees using a non-government email account “must ensure that Federal records sent or received on such systems are preserved in the appropriate agency recordkeeping system.” (It was only last year, one year after Clinton’s tenure had ended, that President Obama signed a explicitly limiting U.S. officials’ use of private email accounts for business matters.) But Clinton aides are the only ones who have determined what amounts to official correspondence and what doesn’t, and others might come to different conclusions.

Did Clinton break the law?

Probably not, but we’re still in a legal grey area. The Federal Records Act—passed in November, after Clinton left the State Department—requires government officials’ emails that are sent from personal account to be forwarded to an official account within 20 days. But during Clinton’s tenure, it was never explicitly required that top-level officials like Clinton use government-issued accounts. “What she did was not technically illegal,” Patrice McDermott, a former National Archives staffer and the head of the transparency group Open The Government coalition, told The Hill newspaper. But, she said, “it was highly inappropriate and it was inappropriate for the State Department to let this happen.”

Because her official emails were sequestered on her private email address, much of her correspondence was not openly available via the Freedom of Information Act (FOIA), which gives the public right to access information from the federal government.

Will we ever see Clinton’s official emails? Or have they simply disappeared?

Clinton’s team turned over more than 50,000 pages of emails from her personal email account to the State Department late last year, when the Federal Records Act was passed, at the department’s request.

How do we know that she turned over all required emails?

We don’t. For several years, media outlets have filed requests for Clinton’s official correspondences during her tenure under FOIA. These requests have remained unreturned or unfulfilled, though the State Department has acknowledged their receipt. Theoretically, all of Clinton’s emails concerning government matters during her tenure fall under FOIA’s domain—but they are inaccessible if they were sent between Clinton’s private account and a third-party agency, such as a nonprofit foundation or a private consultancy. Clinton would need to provide these emails herself.

Have other U.S. officials used private email accounts?

Yes. Several officials in the Bush Administration, such as Karl Rove, were heavily criticized for using personal e-mail accounts to send emails from the White House. While Clinton herself has not commented on the situation, Nick Merrill, a Clinton spokesman, noted that former Secretaries of State in both parties had also used their own email accounts when engaging with U.S. officials.

Were they punished?

We don’t know. There haven’t been reports outlining specific repercussions against those officials who used private accounts for business emails. The White House has repeatedly made its e-mail policy clear each time the issue arises. “Very specific guidance has been given to agencies all across the government, which is specifically that employees in the Obama administration should use their official e-mail accounts when they’re conducting official government business,” White House Press Secretary Josh Earnest said Wednesday.

How much do high-ranking officials like Clinton really use email?

It varies. Janet Napolitano, the former Secretary of Homeland Security, was known for never using email at all. It’s unclear exactly how often Clinton emailed, but certainly enough for her team to turn over 50,000 pages worth of emails. During her time as Secretary of State she was often spotted looking down at her BlackBerry—the image of her doing so in sunglasses inspired a Texts from Hillary meme.

So what Internet service did she use?

Clinton used a private email server registered back to her family’s home in Chappaqua, N.Y., the AP reports. That means she or someone working for her physically ran her own email, giving her wide-ranging control over her message archives. It also could have made her emails more vulnerable to hackers or physical disasters like fires or floods. The Secret Service would have been able to protect an email server in Clinton’s home from physical theft, however.

Clinton reconfigured her email account in November 2012 to use Google servers as a backup . Five months after she resigned as Secretary of State, her email server was reconfigured again, switching her backup provider to a Denver-based email provider called MX Logic.

Who’s this Eric Hoteham figure?

Eric Hoteham is the mysterious name associated with Clinton’s private server account. But no public records of “Eric Hoteham” appear to exist, and the name wasn’t found in campaign contribution records or elsewhere, the AP reports. Politico reported on Wednesday that Hoteham is a Washington stockbroker and former aide to the Clintons.

What email address did she use?

One of her private email addresses was hrd22@clintonemail.com. HRD appears to stand for her premarital initials (Hillary Diane Rodham, as opposed to now Hillary Rodham Clinton). But it’s unclear what the 22 is for. She was sworn in on Feb. 2—or 2/2.

Read next: 5 Things You Didn’t Know About Using Personal Email at Work

Listen to the most important stories of the day.

TIME legal

Man Convicted of Running Notorious Online Black Market ‘Silk Road’

In this courtroom drawing, defendant Ross William Ulbricht listens to proceedings from the defense table during opening arguments in his criminal trial in New York on Jan. 13, 2015.
Elizabeth Williams—AP In this courtroom drawing, defendant Ross William Ulbricht listens to proceedings from the defense table during opening arguments in his criminal trial in New York on Jan. 13, 2015.

The man who went by the name 'Dread Pirate Roberts' faces life in prison

Ross Ulbricht, the website developer who controlled an online bazaar that offered drugs and illicit goods in return for Bitcoin, was found guilty on all charges by a jury in New York on Wednesday. He faces life in prison.

In 2011, Ulbricht founded the $1.2-billion empire dubbed “Silk Road,” and ran it until his capture by the FBI in October 2013. The website allowed people to anonymously purchase goods ranging from heroin to false identification, much of which was sent thousands of miles through regular mail. Ulbricht went by the nickname “Dread Pirate Roberts” while running the site.

MORE: How the Feds Nabbed ‘Silk Road’ Drug Kingpin ‘Dread Pirate Roberts’

Ulbricht’s defense claimed the 30-year-old Eagle Scout and physics student was framed by the real czar of the illicit website.

A jury took about three hours to find him guilty on all seven counts, Bloomberg reports, including trafficking drugs on the Internet, narcotics-trafficking conspiracy and running a continuing criminal enterprise.

MORE: The Secret Web Where Drugs, Porn and Murder Live Online

TIME legal

My Drone Landed in Someone’s Yard—Is it Theirs Now?

Inspire 1 Drone Officially Debut In Shenzhen
ChinaFotoPress/Getty Images The 'Inspire 1' drone is presented outdoors on November 26, 2014 in Shenzhen, Guangdong province of China.

Navigating unmanned aircraft law can be as tricky as maneuvering in the sky

We’ve all been there before. It’s late at night, you’ve had a couple cocktails, and you want to pull out the ol’ drone for a spin. You know, night piloting. Then, before you know it, a tree jumps right into your quadcopter’s path, and it has crashed onto a nearby lawn in the dark.

So, is your drone a goner? Well, that’s a complicated answer.

First, there’s the booze issue. “We prohibit our members from drinking and flying any type of model aircraft,” says Dave Mathewson, executive director of the Academy of Model Aeronautics. Founded in 1936, the 175,000-member organization makes sure pilots like Drunky McDarkwing take to the skies in a responsible way. In fact, just last month the group teamed up with several other organizations, including the Federal Aviation Administration, to launch a “Know Before You Fly” campaign aimed at educating new recreational pilots. “We truly believe that most of these new enthusiasts who are purchasing this technology intend to fly safely and responsibly, they just lack the guidance that helps them understand how to do that,” he says.

For instance, the campaign urges operators who are flying for fun to keep their unmanned aircraft below 400 feet, stay at least five miles away from any airport, and remain within the pilot’s line of site. “This allows the operator to have situational awareness of the airspace around him and gives the ability of sense-and-avoid that is so prominent — and the number one priority — for all operators in the national airspace,” says Mathewson.

But these guidelines are aimed at recreational users, and aren’t necessarily intended for people who want use a drone to check their gutters for leaves. In fact, according to Mathewson, those uses aren’t even authorized. “It’s an incredibly gray area,” he says. “The FAA will tell you that there are no guidelines under which you can do that, although we also know that there are probably thousands of operators out there right now that are using the technology for various things including checking out your roof. We know that there’s search and rescue activity taking place.”

According to Mathewson, the FAA is working on special drone regulations, but they that have been delayed several times since 2009. he says. “Once these regulations are put in place, this will define how other uses of the technology can operate in a national airspace.” Wait, what? National Airspace? Yes, technically, the air above your roof falls within the National Airspace, which is why you need to keep your drone below 400 feet.

All these guidelines say nothing about using a drone to make a buck. That is another tangle of law and regulations that the FAA has only recently begun to sort out. In general, the FAA requires civil operators to apply for a Special Airworthiness Certificate, something akin to a pilots license, and commercial users have to apply for an exemption to fly for profit. As of early January, the FAA had granted just 12 exemptions in response to the 214 requests it has received — a logjam no doubt made more complicated by drones’ rising popularity. “In fairness to the FAA, this is a challenging endeavor for them,” says Mathewson. “The technology is evolving so quickly that it’s been difficult for the FAA to keep up.”

If this answer to the crashed drone question seems to have veered off course, it hasn’t. The FAA has to consider not just everywhere drones can go, but who can pilot them, and what these devices can do. For instance, though it would seem like common sense anyway, the government agency even had to issue a flight restriction over the Super Bowl. It has also been pulling together resources for law enforcement agencies tasked with investigating unauthorized drone activity.

And when it comes to retrieving your drone, it may come down to boring, old property law, which is largely jurisdictional. Common law states that whoever owns the property where your drone crashes can keep it, until or unless you come to retrieve it. In some places, statutes require that people turn lost personal property over to a government official, and if it has not been claimed after a period of time, the original owner’s rights expire. Now, if your neighbor just so happens to live at 1600 Pennsylvania Avenue, you’re in luck. The authorities were nearby, and snapped up your drone right quickly. Also: Don’t ever do that again.

TIME Security

Bitcoins Are Easier To Track Than You Think

Bitcoin
Ramón Espelt Photography—Getty Images/Flickr RF Bitcoin logo

The Silk Road trial shows how they can be tracked

Bitcoin is sometimes thought of as the prime anonymous cash of the Internet, believed to be as untraceable as an under-the-table payment to a babysitter or a drug dealer. But the dramatic trial of Ross Ulbricht, a 30-year-old man accused of running the contraband Silk Road marketplace, is finally putting those misconceptions to rest.

Federal agents said they were able to trace 3,760 bitcoin transactions over the course of a year to servers seized in the Silk Road investigation, Wired reports. A former FBI agent named Ilhwan Yum testified in court that he followed more than 700,000 bitcoins from the Silk Road marketplace to Ulbricht’s personal wallets.

How did Yum do it?

When federal agents arrested Ulbricht in San Francisco in Oct. 2013, they also seized his laptop before he could encrypt it. That machine gave Yum access to Ulbricht’s bitcoin address, which he then compared against what’s called the blockchain, a master list of bitcoin transactions kept to prevent counterfeiting. Comparing the two let Yum track bitcoin transfers from Silk Road servers near Philadelphia and Reykjavik, Iceland to Ulbricht’s bitcoin wallet.

In Ulbricht’s case, the transactions show Ulbricht was trading bitcoins during the same period that his defense attorney said he wasn’t involved with the website. But more generally, it shows that bitcoin isn’t always as anonymous as it’s made out to be.

[Wired]

TIME Web

Alleged Owner of ‘Revenge Porn’ Site Banned From Posting Nude Images

TIME.com stock photos Computer Keyboard Typing Hack
Elizabeth Renstrom for TIME

Craig Brittain allegedly posted pictures of naked women and charged them to have the photos removed

A man who allegedly ran a “revenge porn” website that hosted naked pictures of women posted without their permission is getting his operation shut down.

Craig Brittain acquired a horde of intimate photos and posted them on his website, according to the Federal Trade Commission. The FTC says women who wanted their photos removed had to pay between $200 and $500 to purported third-party services which were actually operated by Brittain.

Now the consumer protection agency is banning Brittain from publicly sharing more nude photographs or videos of women without their consent. It’s also requiring him to destroy the images and personal contact information he collected while running the site.

Brittain acquired the photos mostly by soliciting disgruntled men who provided photographs along with the subject’s first and last name, date of birth, town and state, and a link to the subject’s Facebook profile and phone number, the FTC says. He also allegedly instituted a “bounty system” that awarded $100 or more for photos of specific people.

“This behavior is not only illegal but reprehensible,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “I am pleased that as a result of this settlement, the illegally collected images and information will be deleted, and this individual can never return to the so-called ‘revenge porn’ business.”

TIME legal

Why Keeping Drones Out of No-Fly Zones Is Harder Than You Think

Preview Of The 2014 Consumer Electronics Show
Bloomberg—Bloomberg via Getty Images A DJI Innovations Phantom remote-controlled drone hovers above attendees during the CES Unveiled press event prior to the 2014 Consumer Electronics Show in Las Vegas, Nevada, U.S., on Sunday, Jan. 5, 2014.

One drone maker is taking new steps after a White House incursion

Two days after a small drone crash-landed on the White House lawn Monday, its manufacturer, DJI, vowed to erect an electronic fence around downtown Washington, D.C. Any DJI drone that gets a new software update, the company says, won’t be able to enter this new no-fly zone.

But DJI’s so-called “geofencing” technology isn’t new. The company began developing the feature as early as 2012, when drone fever flared out from hardcore hobbyists to a growing number of more casual users. Market research firm CEA Research estimates shoppers will purchase 400,000 small drones this year. That means there are lots of new flyers out there unfamiliar with the rules of the sky.

“It’s moving from a more niche space to a consumer product where you have a lot of people who may not necessarily know what the rules are,” says DJI spokesman Michael Perry.

So rather than send drone hobbyists a packet of federal aviation regulations, DJI set off to build a few basic rules into its software. Airports, for instance, have a 5-mile Federal Aviation Administration flight restriction, so DJI nabbed a list of more than 10,000 of them and began building digital fences around their coordinates. When DJI erects its fence around Washington, D.C. in the coming days, it will roll out similar barriers around those airports, too.

For DJI, the move might help prevent one of its drones from being involved in something unsafe or outright catastrophic. “We are pushing this out a bit earlier to lead in encouraging responsible flight,” Perry said.

But that still leaves a raft of aviation regulations out of the picture. Flights over military bases, national parks, international borders and crowded stadiums are all verboten. Then there’s the FAA’s constantly-changing list of temporary no-fly zones around stuff like passing presidential motorcades. Drone flyers in Corpus Christi, Texas, for instance, may not have gotten Wednesday’s memo about a flight-restricted swath of their city. And even outside of these FAA rules, there are tort laws governing privacy and personal injury issues. A flight by a camera-equipped drone outside a neighbor’s bedroom window could be legally murky airspace, for instance. This list of moving and abstract targets makes it nearly impossible for drone makers to hard-wire a fool-proof flight path for their customers.

“There really is not a good comprehensive source of places where the FAA is saying not to fly,” says Brendan M. Schulman, a special counsel who specializes in drone casework for law firm Kramer Levin Naftalis & Frankel.

That’s problematic for drone pilots, too. Getting acquainted with all the dos and don’ts of flying, Schulman says, “is really asking a lot of people who are really just flying toys in their backyard.”

Even an obvious rule, such as steering clear of airports, may not be so apparent to amateur flyers. “You can just go on YouTube and see that they’re flying into areas where there’d be a restriction,” says Colin Snow, CEO of trade blog Drone Analyst. One enthusiast flying a drone through downtown San Jose, Snow says, clearly didn’t realize the San Jose airport was less than a 3-mile cruise away.

In other words, there’s no quick, technological fix for wayward drones, short of education and common sense. Schulman is quick to point out that for the most part, the recreational drone community seems to be a responsible lot, a few headline grabbing cases notwithstanding. He says among hundreds of thousands of flyers, he’s aware of only a handful of pending cases by the FAA.

Aviation enthusiast groups, such as the Academy of Model Aeronautics, are also working to teach their swelling ranks how to fly their new drones safely. Richard Hanson, the AMA’s government and regulatory affairs director, praises geofencing, but he also worries too many flyers might think they’re just fine sticking to autopilot: “[Geofencing] sets a mindset within the user that says, ‘I don’t have to worry about that because the manufacturer has taken care of that.”

TIME White House

Man Who Crashed Drone at White House Had Reportedly Been Drinking

US-WHITE HOUSE-SECURITY-DRONE
Brendan Smialowski—AFP/Getty Images The south side of the White House is seen January 26, 2015 in Washington, D.C.

Turned himself in after seeing news reports about the crash

The pilot of a small unmanned drone that crashed on the White House lawn early Monday had been drinking before the incident took place, law enforcement officials told the New York Times.

The still-unidentified government employee turned himself in to authorities after seeing news reports about the crash, which triggered a lockdown at the White House and nearby government buildings.

The Times reported the man had a feeling the drone might have touched down on the White House grounds, but he went home to sleep regardless.

While this particular remote-controlled aircraft posed little risk to the President or others, the event caused concern that similar drones could represent a national security threat.

President Obama himself used the incident to call for a new regulatory framework around small unmanned aircraft. Some Federal Aviation Administration rules apply to small, hobbyist-piloted drones, but the agency lacks an effective enforcement mechanism to punish offenders, largely leaving local law enforcement to sanction pilots who put the public’s safety at risk.

Judging by a Secret Service photo released Monday, the drone was a DJI Phantom, which are about two pounds and just over a foot across and retail for $479 and up:

United States Secret Service

Many Phantom models are capable of carrying a video camera, but it wasn’t clear from the image if the unit in question was equipped with one.

[NYT]

 

TIME legal

How the Feds Nabbed Alleged Silk Road Drug Kingpin ‘Dread Pirate Roberts’

<> on January 13, 2015 in New York City.
Spencer Platt—Getty Images Supporters of Ross Ulbricht, the alleged creator and operator of the Silk Road underground market, stand in front of a Manhattan federal court house on the first day of jury selection for his trial on January 13, 2015 in New York City.

The government says 30-year-old Ross Ulbricht is an Internet narcotics dealer who ordered six murders. Ulbricht's defense says he's being framed.

On the third day of his trial, Ross Ulbricht looked calm for a man who could soon be sentenced to life in prison. The gangly 30-year-old’s parents, Lyn and Kirk, sat behind him in a wood-paneled courtroom fifteen stories above lower Manhattan last Thursday. During breaks in testimony, Ulbricht turned in his chair and smiled broadly at them from beneath a poof of brown hair. “Did you have a good lunch?” Lyn asked her son after a pause on the third day of proceedings. Ross grinned and shook his head. “I’ll tell you about it later.” Lunch in prison doesn’t usually come with an unadulterated endorsement.

Ulbricht, an Eagle Scout with a master’s degree in materials science and engineering who friends say is well-liked and sensitive, is facing grave charges. Fifteen months ago, he was arrested and accused of drug trafficking, computer hacking and running a criminal enterprise, among other charges. His case has become a flash point for Internet activists, who worry a conviction could deal a blow to free speech on the Internet.

Ulbricht’s arrest was the culmination of a two-year investigation into the seedy online bazaar Silk Road, where the narcotics-hungry could find drugs for sale in exchange for Bitcoin, a difficult-to-trace digital currency. Silk Road was controlled by a shadowy website administrator with the moniker Dread Pirate Roberts, who prosecutors say took home millions in commissions on more than $1 billion worth of drug deals and other transactions. Roberts also allegedly used the site to order the murders of six people.

The central question in this trial is whether Ulbricht is indeed the Dread Pirate Roberts. Government prosecutors say that’s the case; they want to send Ulbricht to prison for 20 years to life for his alleged crimes. But there’s more at stake here than charges against a single man: Open Internet activists, some of whom have donated hundreds of thousands of dollars to Ulbricht’s defense, say his case is a matter of online freedom.

(Read more: What Was Silk Road? Refresh Your Memory as Ross Ulbricht Goes to Trial)

A closely-watched case

Traditionally, website operators have not been held liable for illegal activity carried out on their platforms. An appellate court decision gave the social network MySpace legal immunity in 2008, for instance, after an underage teenage girl was sexually assaulted by someone she met through the website. Activists, however, see Ulbricht’s trial as a landmark case, worrying that a conviction could stifle free speech on the Internet.

Last July, the judge on the case ruled that if Ulbricht created Silk Road as a drug trafficking haven as the government alleges, then he’s vulnerable to the narcotics conspiracy charges against him. But the defense argues Ulbricht only founded the site as an “economic experiment,” not as a narcotics ring—even if that’s what Silk Road became. If that argument holds up but Ulbricht is still found guilty of some charge or all charges, it could have a chilling effect on digital free speech.

“At what point are you liable for what happens on a site that you start?” says Hanni Fakhoury, an attorney for the non-profit Electronic Frontier Foundation who’s been watching the case as a neutral observer. “If the government indicted every time someone posted a prostitution ad on Craigslist, [Craigslist founder] Craig Newmark would be in prison all day.” While Fakhoury believes the case could have broader implications for how the government prosecutes website operators for their users’ behavior, he admits Silk Road is at “the far end of the spectrum” of normal Internet activity.

Then there’s the question of how federal agents investigated Silk Road. The defense, led by Joshua Dratel, an expert but somewhat rumpled attorney who has represented high-profile terror suspects and Guantanamo Bay detainees, says the government seized data from the site’s servers without a warrant.

The judge threw out the defense’s motion on those grounds, but the claim opened up the door to several important questions: How exactly did the feds find Silk Road’s servers? Were Ulbricht’s constitutional rights violated in the process? Less than a week and just one witness into the trial, it’s hard to tell how these questions will play out. But the testimony has so far been revelatory, unveiling a federal sting operation worthy of a blockbuster script.

(In the magazine: The Secret Web: Where Drugs, Porn and Murder Live Online)

How Ulbricht was busted

The government’s first witness was Department of Homeland Security investigator Jared Der-Yeghiayan. Der-Yeghiayan says he began looking into Silk Road in early 2012 after federal investigators noticed vendors were using the website to sell drugs. Der-Yeghiayan testified that he made more than 50 drug buys and logged thousands of hours on the website until it was shut down in October 2013.

By August 2013, Der-Yeghiayan managed to seize the account of a lead website administrator named Cirrus. He then used the account to communicate with Dread Pirate Roberts several times a week, with Roberts unaware “Cirrus” was now a government agent.

After Der-Yeghiayan took over Cirrus’ account in August 2013, he began reporting directly to Dread. Dread paid Der-Yeghiayan about $1,000 per week to manage Silk Road’s forums and user questions. The pair were cordial, often asking each other how they were doing. “Thank you for looking after the forums,” Dread told Der-Yeghiayan in one chat.

In another post, Dread addressed users’ criticism that he was taking a commission on each drug trade. Some users were calling it a “tax.” Dread objected to Silk Road being compared to the government, and instead called it a broker’s fee. Like any successful private enterprise, Dread said, Silk Road needed to support itself. “Do you think this site built itself? Do you have any idea of the risks?,” he said.

The Sting

In September 2013, an investigator on the case named Gary Alford told Der-Yeghiayan that a 29-year-old former University of Texas physics student named Ross Ulbricht appeared to be a “pretty good match” to Dread Pirate Roberts’ profile. The FBI got a warrant for Ulbricht’s arrest. By the end of that month, a team of agents set out for San Francisco, where Ulbricht lived under the name “Josh Terrey.”

According to Der-Yeghiayan’s testimony, plainclothes federal agents fanned out across San Francisco’s Glen Park neighborhood on the afternoon of Oct. 1, 2013, monitoring public places with free Wi-Fi access. The plan was to catch Ulbricht signed into Dred Pirate Roberts’ Silk Road account. That way, the government said, it could link Ulbricht the man with Dread the moniker.

At around 2:40 p.m., Der-Yeghiayan settled into Bello, a coffee shop near Ulbricht’s apartment, and logged into the Silk Road administrators’ chat. Dread Pirate Roberts was online briefly until 2:47 p.m. Just minutes after Dread signed off, federal agents saw Ulbricht leave his apartment and walk down the street in the direction of Bello, right where Der-Yeghiayan was still sitting. Der-Yeghiayan ducked out of Bello while the team watched as Ulbricht waited at a crosswalk 50 feet away before entering the shop.

Ulbricht left Bello almost immediately, apparently because it was too crowded. Ulbricht walked thirty feet down the street and disappeared into the Glen Park Branch Library. A few moments later, Dread Pirate Roberts signed on to Silk Road’s chat.

“hi,” [sic] typed Der-Yeghiayan into a chat with Dread, posing undercover as Cirrus. “are you there?” The goal, Der-Yeghiayan says, was to get Ulbricht to log on to Silk Road as Dread, proving the man and the moniker were one in the same.

“hey,” Dread responded.

“how are you doing?” said Der-Yeghiayan.

“i’m ok, you?” said Dread.

“good,” said Der-Yeghiayan. “can you check one of the flagged messages for me?”

“sure,” said Dread. “let me log in.”

It was a trap. Dread Pirate Roberts was now signed in to both the chat and the Silk Road website. FBI agents entered the library, snatched Ulbricht’s laptop and handcuffed him. Der-Yeghiayan walked up the stairs and inspected the computer. Ulbricht was signed in to Silk Road. It was Dread Pirate Roberts’ account.

Even a skilled defense attorney like Dratel would have trouble accounting for Ulbricht being caught red-handed. But Dratel has an explanation: Ulbricht was framed.

Yes, Ulbricht founded Silk Road 2011, Dratel said, but he quickly distanced himself from the online bazaar. Ulbricht never profited from the heroin, cocaine and ecstasy deals trafficked on its pages, Dratel said, and he certainly didn’t order the murders of six people. According to Dratel, Ulbricht was lured back to the website shortly before he was arrested in late 2013 by its then-administrator: Mark Karpeles, chief executive of the Japan-based Bitcoin exchange Mt. Gox, which allowed anyone to convert cash into Bitcoin.

“Our position is that [Karpeles] set up Mr. Ulbricht,” Dratel said in court.

Here’s the twist: Federal agents were ready to indict Karpeles for running Silk Road right up until September 2013, one month before they arrested Ulbricht. Even Der-Yeghiayan himself, after months of undercover drug buys, believed Karpeles was using Silk Road as leverage to drive up Bitcoin’s value.

Under questioning on Thursday, Der-Yeghiayan says he was ready to move on Karpeles. What happened? Dratel insinuated that Karpeles’ lawyer met with the feds and offered to give up the name of the real masterminds behind the Silk Road website. The court adjourned before his questioning ended. It’s not hard to see the defense’s argument here: Karpeles was about to get busted, so he trapped Ulbricht. Karpeles adamantly denies he was ever involved in Silk Road.

For now, the truth seems as elusive as it was to Der-Yeghiayan in June 2013, when in an email to federal agents about the identities of Silk Road users, he confessed he was clueless. “Sheesh, who’s on first?” Der-Yeghiayan said, according to testimony. It’s a sentiment the rest of the courtroom shares.

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