Attorneys Blog

Closed for Business, or Not?
Vice ecommerce are online marketplaces and much like the familiar Amazon and Ebay they exist to provide products to anxious customers. Unlike your typical ecommerce sites, however, these sites specialize in selling illegal products. Selling products ranging from drugs to counterfit documents and weapons, these illicit websites are the virtual equivalent of the real world black market.

The most prominent of these black market sites was The Silk Road, which launched in February 2011. In late September, 2013, however, after a two-and-a-half year investigation, The Silk Road was shut down by the FBI, and its alleged kingpin, William “Dread Pirate Roberts” Ulbricht was arrested.

Online Kingpin
The Silk Road was no small endeavor and was far from being a common street corner drug peddler. According to the FBI, total Bitcoin sales (‘anonymous’ virtual currency) for the Silk Road was $1.2 billion. Sales commission alone was $80 million. The FBI has so far seized about $33.6 million in Bitcoin assets belonging to Mr. Ulbricht, making it the biggest crypto-currency seizure ever.

The takedown by the FBI was no small endeavor either. It cost them well over two years’ worth of manpower and resources to get to this point, and the investigation isn’t even over yet. The prosecution of the case against Mr. Ulbricht is being handled by the DOJ’s Complex Fraud Unit with Assistant U.S. Attorney Serrin Turner leading the charge.

The FBI and the DOJ aren’t working alone though. Britain’s newly formed National Crime Agency, as well as other international organizations, is also participating in the global effort to end black market internet sales. In a statement related to the seizure of Bitcoins and the arrest of U.K. dealers, Keith Bristow, the agency’s general director, said “The latest arrests are just the start; there are many more to come.”

The Silk Road Continues
Even as the governmental agencies issue warnings and push forward to bring down all of the players involved with the Silk Road, as it turns out, they have merely scratched the surface of the black market internet underbelly. Just over a month after the shutdown of the Silk Road, the Silk Road 2.0 was already up and running. It was as if the Silk Road was merely closed for renovations while consumers lined up outside waiting for the big “Grand Reopening”. Just as they did with the original Silk Road, Reddit users simply picked up where they left off, openly posting information such as product and vendor reviews. For them, it was as if nothing ever happened.

Not only do the FBI and the DOJ now have the new Silk Road enterprise to deal with but, in the true spirit of capitalism and supply-and-demand economics, the Silk Road 2 (“Under New Management”), just like its predecessor, has its share of competition. The two biggest competitors to the Silk Road 2 are Black Market Reloaded and Sheep Marketplace.

Enter the Competition
Black Market Reloaded (BMR) is possibly the Silk Road’s biggest competition. It did have its own hiccup to contend with early on but, after being shut down for two days in early October (somebody published some of the source code), BMR was up and running again in no time. Black Market Reloaded changes its URL fairly often and, like all of the other major players, can only be accessed via .onion through Tor. On the BMR Reddit page, just like with the Silk Road, customers can post product reviews and advice on which vendors sell the best product, and who has the best customer service and shipping timeframes.

Sheep Marketplace, like Silk Road 2 and Black Market Reloaded, is accessible only via .onion, and only through the anonymizing network, Tor. Sheep Marketplace also sells a variety of illegal merchandise, but just like the other black market internet ventures, the bulk of its trade is through illicit drug sales. Reddit users also post vendor and product reviews and consumer advice.

There are even sites on the ‘regular’ internet that provide step-by-step instructions on how to safely and anonymously access Silk Road 2.0, Sheep Marketplace and Black Market Reloaded, and they’ll even tell you where to find the URL. It seems that, with the reviews being openly posted on Reddit and the other mainstream sites offering information on how to tap into the black market sites, no one is taking the actions of the FBI and the DOJ seriously.

It’s possible that these buyers have a ‘catch me if you can’ attitude because they feel a certain level of invincibility since their identities are supposed to be protected through Tor. Unfortunately, that’s what Mr. Ulbricht may have thought. Of course, as it states at the bottom of the FBI’s Ulbricht-related press release, “the defendant is presumed innocent unless and until proven guilty.” As such, the ending to Mr. Ulbricht’s story has yet to be written.

Regardless of the flourishing virtual black market and the indifferent attitude of its consumers, it really is a “buyer beware” industry. In a Forbes.com interview discussing the arrest of the alleged Silk Road mastermind, William Ulbricht, an anonymous FBI spokesman said “This is supposed to be some invisible black market bazaar. We made it visible. When you interviewed [Ulbricht], he said he would never be arrested. But no one is beyond the reach of the FBI. We will find you.”

In Utah a video was discovered that depicted a 40-year old man rocking out to music while playing an air guitar. Another video showed a 31-year old woman playing the drums at one of her band’s concerts. These videos would be amusing or entertaining if they were not evidence of social security disability fraud. The 40-year old man had been collecting thousands of dollars in disability payments claiming that his sore muscles would not allow him to work or leave his house. The 31-year drummer had been collecting social security disability checks for 4 years based on suffering from a mental impairment that resulted in “low energy.” Fraudulent social security disability scams are not new. The media regularly reports videos and other evidence of purportedly disabled people engaged in vigorous activities that would be difficult if not impossible if the worker was truly injured or in some other way incapable of earning an income. However, a recent scam that was uncovered by the federal government is particularly shocking as it involved an attorney and a judge.

Conn and Daugherty
Attorney runs a private law practice in Stanville, Kentucky that focuses on helping clients secure Social Security Disability Insurance (SSDI) benefits. According to a report issued by the Senate Homeland Security and Governmental Affairs Committee, the Social Security Administration (SSA) paid Conn over $4.5 million in attorney’s fees from 2006 to 2010. This made Conn the 3rd highest paid disability lawyer in the country. All of these fees were from cases heard by Judge David B. Daugherty, a SSA administrative judge. Of the 1375 cases brought before Daugherty by Conn only 4 were denied, giving Conn 99.7% approval rate. A South Carolina disability attorney notes that this is astounding considering that on average the social security disability approval percentage of cases reviewed by administrative judges is only 62%.

The Conn-Daugherty scheme was brought to the attention of officials by whistle-blowers. The ensuing investigating uncovered the use of physicians with suspended licenses, $96,000 in unexplained deposits to Daugherty’s bank accounts, the use of disposable cell phones, shredding of tons of documents, and the destruction of computer hard drives. Daugherty has since retired and Conn is being investigated by the Department of Justice.

Rampant Social Security Fraud
While the facts and figures associated with the Conn-Daugherty scam are surprising, this scam is only a small part of the overall problem of fraud involved in SSDI benefits. SSDI fraud takes several different forms including making false statements on an SSDI application, using falsified documents such as an altered social security card, or concealing information, such as failing to report an improvement in a medical condition or failing to report the death of a recipient. A report recently released by the Senate Permanent Subcommittee on Investigations discovered that fraud is so rampant that the Social Security Disability Trust Fund could run out of funds in 18 months. In recent years the number of people receiving SSDI benefits has skyrocketed from 6 million in 2002, to 9.4 million in 2010 and as of August, 2013, 13 million. SSA officials attribute the increase to the aging population. However, a simple gleaning of records show sloppy work in the review and processing of applications and a clear effort to quickly work through the backlog of cases. As a result it has become relatively easy to get away with fraud. For example, the SSA is supposed to conduct Continuing Disability Reviews (CDRs) to determine the status of claimants. Due to lack of sufficient staff CDRs are not routinely completed. Because of this scams such as the one perpetrated by an Oregon woman who collected her father’s SSDI checks for 26 years after he died, are widespread and often go undetected.

How to Stop the Fraud
The Social Security’s Office of the Inspector General set up a hotline for people to phone in tips on SSDI fraud. A report can be anonymous, but the SSA encourages people to disclose their names as it makes it easier to investigate the possible fraud. For the 5 month period from October 1, 2011 through March 30, 2012, the OIG received 63,368 allegations of fraud. Based on these allegations the SSA opened 3,969 cases that resulted in 703 criminal convictions.

While the hotline, CDRs, and other procedures that the SSA has in place are necessary, they are clearly not the complete answer to the problem. The SSA has an annual budget of over $12 billion with a deficit of $47 billion at the end of 2012. Clearly more emphasis needs to be focused on ridding the system of fraudulent claimants. Do you think new procedures need to be implemented? Or should more of an effort be made to make current systems, such as the CDRs, effective?