U.S. sharply reduces Silk Road's estimated sales volume

By Emily Flitter

NEW YORK (Reuters) - When U.S. authorities announced the arrest of Silk Road creator Ross Ulbricht in October 2013, they made a startling claim: the online black market had seen an estimated $1.2 billion in illicit sales since its inception.

This week, however, as Ulbricht's criminal trial began, prosecutors significantly scaled back that figure, saying Silk Road had actually seen an estimated $200 million in drug sales, which comprised 95 percent of all sales on the website.

The revision could be good news for Ulbricht, who has admitted creating the site, where users could buy drugs and other illegal goods using the digital currency Bitcoin, according to former federal prosecutor Jeffrey Alberts.

Since advisory federal sentencing guidelines for drug trafficking take into account the size of the scheme, the reduced sales figure would put Ulbricht's offenses into a different category under the guidelines, said Alberts, who is now a partner at law firm Pryor Cashman and is not involved in the case.

Ulbricht, 30, is facing a seven-count indictment for offenses including money laundering, computer hacking and conspiracy to commit drug trafficking. He could face life in prison if convicted on all counts.

But taken on its own, a conviction on the drug trafficking conspiracy count would elicit a recommendation of 30 years in prison for an operation larger than $400 million, as prosecutors originally estimated. That would fall to 28 years for a scheme netting between $400 million and $200 million, and 26 years for one just under $200 million.

Ulbricht's lawyer declined to comment.

The change in Silk Road's estimated sales volume is not, however, entirely due to fluctuations in the value of bitcoins, which have actually increased in price since prosecutors filed the criminal complaint against Ulbricht on Oct. 2, 2013. Back then, one bitcoin was worth $125 but they are trading at around $205 today.

While formulating the complaint against Ulbricht, prosecutors arrived at the $1.2 billion figure by looking at the total value of bitcoins obtained through sales on the site, according to the complaint.

But after combing through Silk Road's files, they recalculated the total by adding up the value of individual drug sales according to the price of bitcoins at the time of each transaction, arriving at $200 million, according to the U.S. Attorney's Office.

Adjustments like this one are common, Alberts said. The more precisely prosecutors can calculate the size of an illegal operation, the less likely defence lawyers are to contest the estimate during a sentencing hearing.

Another advantage to the revision: it is a number that will not change even if bitcoin prices do.

The case is U.S. v. Ulbricht, U.S. District Court, Southern District of New York, No. 13-06919.

(Reporting by Emily Flitter; editing by Noeleen Walder and G Crosse)