Friday, April 21, 2017

Sheep Marketplace Owner Indicted and Face Years in Prison

Prosecutors in the Czech Republic have indicted Thomas Jiřikovský, the owner of the Sheep Marketplace, and his wife Eve Bartošová. Thomas Jiřikovský is responsible for the largest exit scam in the history of darknet markets. Thomas has been indicted on charges related to theft and weapons and drug trafficking, and his wife Eve has been indicted on money laundering charges. If convicted, Thomas Jiřikovský faces 10 to 18 years in prison. His wife, Eve Bartošová, faces 3 to 8 years in prison if found guilty. The Sheep Marketplace launched in March of 2013 and operated as a hidden service on the Tor network.

After the original Silk Road marketplace was seized by authorities, Sheep Marketplace became a popular alternative. In November of 2013 the site was hacked by a vendor who stole 54,000 bitcoins, worth approximately 6 million US Dollars at the time. A notice to users posted on the market claimed the hack was caused by the vendor EBOOK101. A week before the hack users on Sheep Marketplace were experiencing suspended withdrawals. Two Florida men were arrested for the hack and had millions of dollars of their money and property seized by the federal government after they were caught moving the bitcoins they stole onto a Coinbase account. Coinbase is heavily regulated and is in compliance with financial regulations at the state and federal levels. Among these financial regulations is a requirement to report suspicious activity. Coinbase is also known as police friendly, as local, state, and federal law enforcement agencies use the site to sell bitcoins they have seized during investigations and through forfeiture proceedings. Law enforcement sent a subpoena Coinbase, which revealed the two men from Florida had deposited 842 bitcoins.

After the marketplace was hacked, in December of 2015, Thomas shut down the site and stole all of the bitcoins stored on the Sheep Marketplace’s servers. Thomas and his wife made off with around 40,000 bitcoins, worth approximately 40 million US Dollars at the time, from the accounts of users and vendors of the Sheep Marketplace. Thomas was arrested in March of 2015 after Czech law enforcement officials caught Thomas purchasing a house near Hodonin with money he got from the exit scam he pulled at the Sheep Marketplace. Thomas’ wife Eve had also put some of the money from the exit scam into the house of a relative. Jiřikovský and Bartošová used Bitstamp to convert the stolen bitcoins into Czech crowns. The value of the bitcoin at the time was approximately 109 million Czech crowns.

“We filed the indictment for crimes of unauthorized production and the handling of narcotic and psychotropic substances, theft and illegal possession of firearms. The woman was charged with the crime of legalization of proceeds from crime,” Hynek Olma, a spokesman for the Brno prosecutors office told Aktualne.cz. Jiřikovský’s and Bartošová’s house, bitcoins, and computers were seized by law enforcement during the investigation. Law enforcement has not disclosed what will happen with the property and bitcoins that were seized in the case.

Sheep Marketplace joins sites such as Evolution, Atlantis, Oasis, The Black Flag, and other marketplaces that have ended in exit scams. While Sheep Marketplace only existed for a brief few months, it ended up taking in millions of dollars in deposits which the site’s owner was able to run off with. As darknet markets evolve the problem of exit scams may be resolved through the use of decentralized marketplaces. Decentralized darknet markets are just in the early stages of development. OpenBazaar is working on releasing version 2.0 of their software, which will be compatible with the Tor network. Other decentralized darknet markets include Axis Mundi, Particl, OpenMarket, and BitMarket. More than a few decentralized marketplace projects have also come and gone without success. Another solution to the problem of exit scams is the use of multi-sig escrow systems, where bitcoins are never transferred to the marketplace itself. HANSA Market, AlphaBay, Outlaw Market, and others offer multi-sig listings.

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