Posted by: DeepDotWeb
July 29, 2014
As Gwern said:
I stopped in at PACER today to see if the XK criminal complaint had been unsealed yet; it doesn’t seem to’ve, but like in the Ross Ulbricht case, the anti-bail letter written by the prosecutor describes more information. Given the scale of XK’s operations and exposure and the evidence they obtained against him, XK’s bust may have been overdetermined and the exact cause not particularly important.
Under Defendant’s direction, his organization produced over a million Xanax tablets per week and shipped these pills throughout the country. Defendant was also responsible for the production and distribution of significant quantities of GHB, steroids, and other drugs.
When agents executed search warrants on locations controlled by Defendant, they seized a massive amount of drugs and related contraband. When combined with earlier controlled purchases and limited seizures during the investigation, agents recovered the following: six industrial pill presses, including multiple “rotary” presses capable of stamping out tens of thousands of pills per hour; two industrial mixers; roughly 1.3 million Xanax tablets; over 300 pounds of anabolic steroids; four pounds of suspected oxycodone pills; over four gallons of GHB; roughly 13 kilograms of alprazolam powder (estimated to produce approximately 3.9 million Xanax tablets); an estimated 4,500 kilograms of binding agent, which, when combined with sufficient alprazolam, would generate over 28 million Xanax tablets; and other materials.
In addition to the nine defendants in this case, evidence gathered from Defendant’s enterprise led to the arrest of nearly 60 other people throughout the country and the seizure of multiple tens of thousands more pills, as well as cash and firearms.
Defendant’s operation was as sophisticated as it was massive. For raw materials, Defendant arranged for large quantities of alprazolam (Xanax) powder and pill-making equipment to be shipped from China, usually to his co-defendants or other nominee addresses. To pay for this material, he wired significant sums of cash to his connections in China, often through Western Union. For example, agents obtained records showing Defendant, through co-defendants Christopher Neely and Alicia Mitts, wiring over $80,000 to recipients in China over a period of three months. In fact, Defendant told one of his associates that his earlier wires to China generated such a high volume of suspicious transaction activity that Western Union “blacklisted” him from conducting any further business with the company. In light of this experience, Defendant arranged to have others place the wires to China on his behalf and to structure those wires to avoid detection by law enforcement.
…Defendant sold his pills online, including using the underground websites Silk Road, Silk Road 2.0, and his personal website, www.xkloves.us, and he shipped drugs to 48 states. Prices for his Xanax tablets varied depending on the size of the order, ranging from $2 per pill for small orders to $0.60 per pill for orders in the multiple tens of thousands. Defendant was frequently paid by his customers in the digital currency of Bitcoins. He was also paid in cash, regularly receiving boxes full of cash from his Internet sales. For example, in selected interceptions of just one location to which Defendant had payments sent, the address of co-defendant Thomas Elliott (using the fictitious name “Tim Elliot”), agents seized over $175,000 in cash that was sent through the U.S. mail. During the execution of search warrants on May 28, 2014, agents found at least one other cash package at a location associated with Defendant. To date, agents have seized over $200,000 in cash and $25,000 in Bitcoins from Defendant’s operation.
…It is critical to note, however, that this figure represents a small fraction of the proceeds that were flowing to Defendant. The cash seized came only from funds that Defendant had on hand on May 28, 2014, and from an earlier limited seizure of packages. As discussed above, Defendant’s operation was high-volume and lucrative, and agents do not know where Defendant has hidden the rest of the money. Defendant also sold drugs locally, distributing Xanax tablets, GHB, and steroids.
Defendant employed a number of individuals in various capacities, including the co-defendants in this case. Some individuals worked for him manufacturing pills and sending out completed orders. Others were responsible for maintaining the machines. Still others, including people he had never met in person, were responsible for collating and consolidating his Silk Road orders, for maintaining his Silk Road website, and for coordinating the conversion of some of Defendant’s Bitcoins into cash – cash that was then shipped to Defendant. Defendant hired other individuals to receive packages on his behalf, both packages of cash from customers and from Bitcoin conversation and packages of alprazolam powder from China.
As an example of how organized Defendant’s operation was, Defendant installed a time clock at his manufacturing location, and those employees who worked on the pill presses and industrial mixers punched in and out, as in a regular factory.
…Defendant also poses a significant danger to the community by virtue of the fact that he is a convicted felon who was in possession of an assault-style weapon with an obliterated serial number. Among the locations agents searched on May 28, 2014, was a storage unit that Defendant rented. During the course of the investigation, agents observed Defendant going into and out of this location numerous times. Inside the unit, agents found a significant quantity of steroids, as well as equipment that could be used in processing steroids. They also found an AR-15 style carbine rifle, complete with several loaded magazines of ammunition. See Ex. A (photograph of the weapon). Even more significantly, the serial number for this weapon had been obliterated.
…Although not the most significant factor, the Court should consider that there is a wealth of There is Considerable Evidence Against Defendant evidence against Defendant. Agents have a host of recorded conversations with Defendant in which he discussed and set up drug transactions. Agents also coordinated a number of controlled purchases of drugs with Defendant, including deals for Xanax tablets, GHB, and steroids. This ultimately led to the authorization of a Title III interception of Defendant’s phone. During the period of interception and during earlier recorded calls, texts, and in-person communications, Defendant openly discussed his drug operation. He talked about the massive volume of orders he had to fill, the difficulty in getting quality help, and various strategies to launder money, including setting up a purportedly legitimate business to provide a front for the drug operation.
…Agents also recorded Defendant reveling in his success. For instance, at one point during the interception period, he boasted of having his best week ever – a week in which he produced over a million Xanax tablets. In an earlier conversation, he told a confidential informant that he had $1.17 million in cash available somewhere. At another point, he laid out his “retirement plan,” which was to generate $10 million in four years, turn over the business to others, and then collect royalty payments from his successors. As discussed above, agents have seized only a small portion of this money.
This is a lot of interesting information that many people can learn from. We will be following this case and updating as more information becomes available, Again, Full credit goes to Gwern for posting this on Reddit.