1.Exhibit Redactions, Other Silk Road Goods, Karpeles and Alternative-Perpetrator Ruling, and Family Communications

THE COURT: These things happen. Too bad it happened to late at night for you, but here we are and it's all set at this point. It actually did have the advantage -- please be seated, all of you -- of giving me some additional time to go through some matters. I've got one and then possibly a second matter raised by the government in a letter this morning to go over. The main matter that I wanted to address before we start is the evidentiary issue left over on Thursday, which was the subject of the significant letter submissions that I received on the 19th from both sides.

Are there other issues apart from the one raised this morning and the other that was the subject of the significant submissions that you folks want to raise? I just want to get a sense of how many things we need to address before we begin.

THE COURT: I do remember the questioning because I actually had the same thought about it falling into the opening of the door for these other pieces. One of the implications was that really bad things, other kinds of bad things were not offered on the site, for instance, things which, to pick up on a theme I think has been developed, could not harm people; that as we have seen from the signature line of certain chats, the drugs don't jump off the table and harm anyone. So I think by implication since those documents are in, the question of whether or not guns were being sold, I suppose you could argue that they don't jump off the table and hurt someone either, but it's a little further afield. It's potentially opened.

Why don't you tell me whether or not you'd be willing to strike the line? I would do it in a way that is very I think very light, which is you may have heard testimony about other goods and services that were or were not sold on the site. What's relevant to you, ladies and gentlemen, of the jury is the evidence that you have and it's for you to weigh that evidence as to what has been sold on the site.

THE COURT: Right. We have two side bar issues. Then let me deal with the issue which we have all spent I assume a great deal of time on over the weekend. And as is the case with rulings like this, I have read the cases which you folks have presented me with, for which I thank you, and also did rather exhaustive research on our own to come up with what is the right way to analyze this evidentiary issue. And I'm speaking now about the evidentiary issue left over from Thursday afternoon. I'm going to call it the MK issue for the Mark Karpeles issue, but it also can relate to something more generically described as an alternative perpetrator issue.

I have read the letters submitted by the parties. I have read the cases and I also went back and reviewed the transcript of our prior proceedings. One thing I would note is that the prior transcript did convince me that there were, having now decided how to analyze this issue properly, there were all kinds of things to which the government probably should have -- undoubtedly should have objected earlier and we would have ripened this issue before it had gotten so far down the road. Part of the confusion here is trying to differentiate between similar types of questions when certain questions weren't objected to and then others were objected to. But let's put that issue of whether there would be a waiver to the side for a moment and let me tell you how I analytically put this issue together.

I want to start from the beginning, which I think is important which is asking ourselves as to any evidentiary ruling what is this case really about. This case is about whether this defendant, Mr. Ross Ulbricht, engaged in the conduct that is charged in the counts in the indictment. So then we get to what is relevant evidence? Relevant evidence is evidence which is probative of a fact in dispute and whether the defendant is Dread Pirate Roberts or was Dread Pirate Roberts at certain points in time but not other points in time is a fact in dispute.

Then we ask what's the relevance more granularly of whether the defendant was Dread Pirate Roberts? And that is because at certain points of time, there are certain pieces of evidence where Dread Pirate Roberts does certain things which the government has presented. If Dread Pirate Roberts at that moment is Mr. Ulbricht, then that leads to one set of possible inferences; if Dread Pirate Roberts at that point in time is not Mr. Ulbricht, then it leads to another.

Now, a question which is, I think, floating around in here through this is whether or not the fact that there might be - and certainly the defense is arguing - another Dread Pirate Roberts, does that exculpate the defendant? Is it exculpatory, and that it may or may not. That will be up to the jury ultimately to decide.

First, the jury will decide whether they believe in the defense theory, which it has a right to pursue as to an alternative perpetrator, and the alternative perpetrator, the defense alleges, is either "the" Dread Pirate Roberts or became Dread Pirate Roberts and then framed Mr. Ulbricht and turned over his identity to him at some point in time.

Now, only if the evidence relating to the Dread Pirate Roberts at a particular point in time where the reasonable inference can be drawn that it was not the defendant could it be exculpatory; in other words, you could have the defendant be Dread Pirate Roberts at one point in time, have somebody else be Dread Pirate Roberts at another point in time and had to go back to the defendant, that's not exculpatory except for the quantum of whatever the proof is in between.

For instance, if the quantity of drugs, which could be a very relevant issue, takes hold during the period of time that the defendant was not Dread Pirate Roberts, that's one thing. Of course, if the defendant is shown to join a conspiracy for narcotics distribution at any point in time, a defendant is liable for all of the acts going backwards. So as a matter of law, we know this from the Gonzalez case, there are oodles of cases from Supreme Court case law that a coconspirator who joins a conspiracy is liable for the acts which occurred prior to that individual joining so long as those acts were reasonably foreseeable to the coconspirator. So whether or not the presence of additional Dread Pirate Roberts helps is a question to be determined first based upon an analysis as to whether or not there is a second - or even if Mr. Ulbricht is a first - Dread Pirate Roberts. Now, since Mr. Ulbricht, his counsel conceded in the opening that he started Silk Road, the timing is unclear as to when and whether the defendant allegedly left Silk Road and whether or not there's a point in time when he becomes Dread Pirate Roberts before he hands over I think according to the defense theory the website. And the evidence appears to be from the government that the defendant was found at the time of arrest acting as Dread Pirate Roberts at the time of arrest. Whether that was for that one day or whether it had gone back in time and in fact covered the entire time will be for the jury to determine. So that's sort of the relevance.

Now, the Court looks at relevance broadly as the Second Circuit requires under the rules under 104, but the Court also is mindful of balancing Rule 403, which is whether or not things that require trials within trials end up being unduly confusing, misleading to the jury, and so I have that in mind and I've had that in mind as I have proceeded.

The evidence of third-party culpability and alternative perpetrator is admissible if there's sufficient evidence tieing a particular person or even if it's an unknown person to the offense. That's the Wade case, Second Circuit case which you both acknowledged and cited in your papers over the weekend, a 2008 case, but you do need some direct evidence of connection. That's the other point that the Wade case makes clear, because it's very possible to have suspicion as to more than one person and this apparently happens as you folks know all the time, whereas the investigation eventually focuses primarily on one and one is primarily then tried and the other may never be tried.

So the question ultimately boils down to whether this particular defendant did the particular acts which would relate to or amount to Counts One through Seven, not whether somebody else also did those acts at the same time, in effect, duplicating those efforts.

So one issue is what does the defendant have that Mark Karpeles is, in fact, DPR if there's something that we're leading up to versus just trying to get that information out of the government's witness; in other words, whether or not there is going to be other evidence offered. I am mindful of Mr. Dratel's point that the timing of the turning over of the 3500 material makes certain aspects of this more difficult for the defendant because they simply haven't had time to develop all that they would have for Mr. Karpeles, but nevertheless, the defense theory has been known since at some point many months ago. It's been previewed even to the Court. So the fact of another DPR, whether it be Karpeles or somebody else, is certainly something which I assume the defense has developed to this point and, therefore, there may be lots of things which the defendant, if he has them, would be able to present as direct evidence of that theory. For instance, now, as we all understand, it's the government's burden to show that the defendant is or is not culpable of the offenses charged. The question is whether or not the defendant wants to try to rebut some of that evidence in a particular way, but it's the government's burden in the initial instance.

So, the question is whether or not the defendant has this, for instance, like chats with a third party showing that he's about to turn over the website, soliciting interest in somebody else wanting to take over the website; in fact conveying the private key, something which indicates that there was a moment when it was copied from another computer to a different computer. There might be any variety of ways which those of you who are more technically savvy than I am could use to demonstrate that, but it's the direct evidence of another DPR which is competent evidence.

Now, we used the term competent evidence on Thursday and competent evidence, just to be clear, it needs to both be relevant as a threshold hold matter, which I've already now described, but it also needs to be admissible evidence under the rules and not subject to an exception under the rules. So it's direct evidence of somebody taking over the website, it's also circumstantial of someone taking over a website, so circumstantial evidence where various dots can be placed along a line and while it's not drawn in between it, a reasonable juror could draw the inference would be competent circumstantial evidence. It's important, and this is where the difficulty comes in and it's a difficult issue for trial judges everywhere, to distinguish between what is speculation and what is circumstantial. There's a difference between what is circumstantial evidence and what is purely conjectural or purely speculation. There's a lot written by a lot of courts on where an inference becomes conjecture or where an inference is reasonably based on fact.

The point is that the logical inference must itself be based on otherwise admissible evidence; otherwise, it does become conjecture. So there is lots of case law, which we have now all had an opportunity to slow down and read, which indicates that a person's subjective beliefs is simply speculation. There are certain instances where subjective beliefs may be admissible. Those are not pertinent here. That is, for instance, in certain instances not going to an ultimate conclusion of a case where an expert witness can offer certain opinions.

Indeed, lay witnesses can also offer certain opinions, but they can't usurp the fact-finding role of the jury. So let's go back to our umbrella example. It's certainly okay for witnesses to discuss on the witness stand -- this is now the circumstantial evidence example I raised during the early part with the jury -- I saw individuals enter the courtroom with raincoats, I next saw them enter with umbrellas, I saw that there was water dripping off of the umbrellas. Those are facts which the witness is seeing. The witness can't say I know it's raining or I believe it's raining because that is ultimately for the lawyers to argue from the various facts which are put in as inferences.

So this is where we get to the first part of -- and I'm going to give you folks a list of what's okay and what's not okay, it's not all not okay and it's not all okay -- of Mr. Der-Yeghiayan. What Mr. Der-Yeghiayan thought and believed it's clear to me, having now reviewed the cases very clearly and analyzed from the beginning what is competent evidence and what is incompetent evidence, that his thoughts and beliefs are irrelevant.

I've also gone back through the earlier portion of the transcripts and, in fact, the government stayed away from thoughts and beliefs, but he's been brought into it a lot on cross. The government did not object to numerous, numerous instances where he was asked about his thoughts and beliefs, and I think this led to the confusion.

Let me just give you folks a cite of the Johnson case at 529 F.3d 499 at pin cite 501 and also the Garcia case, and there are a number of others which stand for this proposition. This is an especially important proposition when you're talking about an investigator or a special agent because the redirect examination that could lead from this is clearly error and you can't have one side, one-hand clapping.

The clear error is the following: If allowed to say I believed at one point in time that Mark Karpeles was the DPR, and what did you base it on? I based it on the following four sources of information, the redirect becomes, Did there come a point in time when you ceased to believe that? Yes. And who did you become a believer in in terms of their guilt? I believed it was Ross Ulbricht. Can you tell me now why? Yes. Because of the following 27 pieces of information, which then become essentially a summary statement that the government would normally do during its closing arguments. That kind of conclusory summarizing testimony as to drawing inferences for the jury that the jury would be drawing usurps the jury's fact-finding role and is clearly not relevant.

What is relevant is direct knowledge and responses to that direct knowledge. For instance, before I go into probable cause, let me say that it's error for the agent to testify about opinions regarding any person's culpability, particularly clear with respect to the defendant, but the same principles apply to third parties. And that is true under 701 and the Garcia case I mentioned is a Second Circuit 2005 case, the Grinage case, another Second Circuit case; the Dukagjini case, a Second Circuit case. We're not the first court to have confronted this question. And then also the Carmichael case which is a Second Circuit case from 2005 where the Court then talks about the difficulties of opening the door in that kind of case. Let's talk about probable cause. In terms of probable cause, there have been other instances where individuals have been asked whether or not there was probable cause in their view, and that has been precluded across the board on the basis that it's a legal conclusion; that the concept of probable cause is a legal concept. Is there probable cause to believe a crime has been or is about to be committed? So it asks for an answer to that legal conclusion, and so whether it's put into the form of a statement, "I believe that there's probable cause" or in terms of a physical manifestation of that, "I sought a search warrant implicitly because I believed there was probable cause," that is similarly based upon the legal conclusion.

Now, with all of that said, as we all know, there are a series of cases which are quite clear that the defendant is entitled to present a defense theory. There is a defense theory here that's clear that the defendant is pursuing as to an alternative perpetrator and he is certainly allowed to present competent circumstantial and competent direct evidence supportive of those theories, and I am in no way precluding the defendant from presenting a witness who may be able to suggest that he or she knew the real Dread Pirate Roberts and it wasn't the defendant or whatever various ways this could be shown.

And there are certain cases that are inapposite to this case but that are supportive of it, of that principle. The Alvarez v. Ercole case, in that case, there was a report of another suspect. The issue there was that the lead for the other suspect was never pursued. Here, that's not the issue. There was an investigation that was doing whatever it was doing, and it was remanded on the basis of a habeas petition that they should have allowed it to be inquired into not the truth of whether that other person was guilty or not, but of the adequacy of the investigation.

In the U.S. v. White case, which is a 2012 case, in certain instances, that case indicated that the charging decisions could be admissible. There, there were other occupants of a vehicle who were charged with possessing the very firearm that then the defendant was charged with possessing. It's not apposite. And then the Wade case we talked about, the Wade v. Mantello case is supportive of the Court's view. In terms of the Arbolaez is a case that we found which is at 450 F.3d 1283 at 1290, and it's an Eleventh Circuit case, 2006. That's another case talking about probable cause in connection with an investigation being inadmissible hearsay and the statements only allowed -- if they were allowed in, it would be only for the purpose of showing some amount of truth.

So here are the questions, which, based upon all of these principles of law, appear to the Court to be clearly off limits, and then I'm going to give you the ones which I think are on limits.

Off limits are things such as the following, these questions or reasonable derivatives of these questions: Did you suspect Mark Karpeles? The word "suspect" is a conjectural suspicion. Now, I will say that was asked in spades with no objection by the government earlier on. It was asked two or three times on Friday, but we'll get to what we do in terms of the government's application in its letter to strike, which is somewhat complicated.

But did you suspect Mark Karpeles? There should be no further questioning into that. Did you believe Mark Karpeles was DPR? There should be no further questioning into whether or not this witness believed -- the dots can be drawn, but the belief he needs to stay away from.

Do you suspect Ross Ulbricht? Do you believe Ross Ulbricht was DPR? Similar, the same witness can't do one, he can't do the other. Does he suspect that Mark Karpeles operated Silk Road? Does he suspect? Does he suspect Mark Karpeles did not operate Silk Road? Both of those are equally off limits. Any descriptions of belief that he has are off limits. However, what's not off limits are things like: Did you see X? Did you do Y? Did you investigate X? Yes. No. Did you see X? Did you see Y in connection with that work? Now, the interview, this is now the Forbes interview we talked about that on Friday, and that is hearsay, and I don't think there's much of a debate about the content of it being hearsay. Whether or not this particular witness believed it sounded like the man on the moon, it doesn't matter, or that he believed it sounded like Karpeles doesn't matter because that's his subjective belief.

Now, in terms of the offer, the offer to provide, this is the Karpeles offer, through his lawyer through another AUSA etc. to provide law enforcement with information as to who the real DPR was is also not relevant. The offer is the fact of the offer. That's the only point of that, because we know that there was no information. We know that Karpeles did not provide, based upon the government's proffer, he never provided that information. So it's not as if there's some secret name that comes out. So the fact of the offer itself is not relevant to a disputed issue of fact. It is not a disputed issue of fact relevant to this defendant's culpability whether or not an offer was made by somebody else to potentially divulge information. And it's really a way of, I believe, getting out whether or not Karpeles had inside information about Silk Road. If he did, he did, but that's a separate question from whether or not Ross Ulbricht can be tied himself through competent evidence to Silk Road in the manner the government has been suggesting.

In terms of the 807 and whether or not that gets over hearsay, first of all, I find that the fact of an offer upon analysis and taking it apart as to what each segment is for is irrelevant, but is it probative? Is it more probative than anything else that can be offered? The answer is no. It's really inviting the jury to speculate. And the other issue is that Karpeles was self-interested in making any offer at the time and, therefore, it's unclear whether he actually had any information. So the fact of the offer is suggestive of a fact of real and potentially inferentially reliable information and Karpeles -- there's no indication that he would have provided that.

Now, what would be okay: Any chats on the website that DPR was handing off the website or that Mr. Ulbricht, during the time that he was in charge of Silk Road by his own admission or by his counsel's assertion, was handing off the website; evidence as to whether or not, for instance, Ross Ulbricht, when he was being viewed by law enforcement and they were tailing him, which this information has some information about, he may have limited information, but whether or not Ross Ulbricht was going to work, for instance. Was he going to an office, was he doing something else, does he effectively have an alibi defense? Are there reviews of bank accounts that reveal information that indicate payroll coming in from a third party? Is there evidence that another account was receiving Silk Road commissions looking at the account numbers and tracing the numbers through?

He can challenge the recollection of the website, challenge the buys, challenge the facts relating to the arrest. He can also seek to introduce evidence that others were tied to the servers; that there were other individuals who were leasing the servers; that Mark Karpeles or somebody else was leasing the servers; that Mark Karpeles did any number of things, X, Y, Z; that Mark Karpeles had a website if he's able to show it through a witness with competent technical evidence that the website had certain aspects of its platform that were replicated in the platform of Silk Road, that would be fair game. There are other questions which were asked which were fairly asked, which is, was Mark Karpeles running MtGox? That's perfectly appropriate. Many of the questions that Mr. Dratel asked were absolutely appropriate and are supportive of the defense theory. The questions that were not appropriate were the ones that strayed into the words "belief" and "conclusion," but where they were simply asking about facts, they are perfectly appropriate.

THE COURT: So what we'll have to do -- and that's the Court's ruling on this. Much of what, as a result, the defendant wanted to go into in terms of exploring the search warrant application is off limits, because the very question that was to be asked, which is what are the four sources of information that you had, X, Y, Z, and then, based on that, what did you do next. Now having reviewed the cases -- and they seem to be clear in this regard -- so long as he is able to present the witness -- the defendant is able to present direct evidence of his own defense of another perpetrator, getting the speculation of a third party, even the investigator, is an improper way to proceed.

So those questions, in that way, are off limits. But the other questions of direct evidence through this witness, who had a lot to do with the Silk Road website, so if he happened to look at all the chats and looked at all the chats of DPR and/or any account associated with this witness, he can be crossed on whether or not there is clear evidence of a handoff. And the jury will then be given the opportunity to draw its inference as to whether there was or was not a handoff. This witness cannot say whether there was or was not a handoff, but he could certainly present evidence in that regard; there is no doubt about that.

What we should do, I think, is there are some questions. I've got a whole bunch of them that are flagged here. I am happy to hand over my copy of the transcript to counsel for everybody to review. You need to figure out, to the extent anybody wants to go back on certain Q and A's and to the "belief" questions and the "conclusion" questions, which were allowed to go, I don't want to just do a global strike because many of the questions were fine. So the question is going to be which ones do you want to strike and does the government have a view as to how to do this without creating more problems?

So I'm not going to do it when the jury first comes out. I will take it up at another time. And I would like it to be very specific and have you folks confer on it. But when I flagged things, I flagged things which I think are also appropriate. You will see, based upon what I just said, what will jump out as you as unobjected-to questions that, based upon the Court's review of all the case law, I now believe would have had appropriate objections sustained but they were let go. So let's take it step-by-step because I don't want to eliminate things which the defendant elicited fairly, and we have to be careful as we proceed now that we do have a live objection.

All right. Mr. Dratel, I know you don't agree with my ruling, but do you understand the parameters that I have set?

THE COURT: All of that, of course, you are welcome to explain, and you are certainly welcome to cross-examine this witness. I'll tell you. I feel very comfortable in a careful -- and with the Ercole case, it is a 2014 case. It is an unusual case because it is a reversal of a state court case. There is a remand on habeas. I read it a couple of times. But I'm comfortable. I've also read the Kiley v. White case more than once in the context of this and other cases. I'm comfortable with my ruling.

My question to you right now, so we can get going, is do you understand the parameters of what you can ask?

THE COURT: No. Well, you are talking about those are inferences versus his conclusions.

All right. So if you have any questions about a particular issue that you want to raise that I am not letting you raise, then present it to me, but otherwise we'll proceed with this. I'm not right now striking any of the testimony that came in. Frankly, a huge amount came in on Thursday. It will be up to really the government's burden to figure out what portions they believe are appropriately struck and then to discuss whether the defense agrees not as to whether or not they agree with the evidentiary ruling but given the Court's parameters, and if the defense does not agree with any of it, then I will just make a ruling.

THE COURT: There is a waiver aspect of it. We haven't talked about that or briefed it. That is why I don't want to do that right now. It is complicated because it is interspersed. There are completely unobjectionable pieces interspersed with objectionable. You will be able to say Karpeles was out there. He had the computer expertise. He owns Mt. Gox. There are going to be certain things that are still going to be, I believe, in the record. We'll have to take a look at how the Q and A's come out ultimately, but there will be facts.

All right. Let's take up the two sidebar issues.

Mr. Turner.

THE COURT: I mean, there is one way of doing it which is, ladies and gentlemen, you heard the witness talking about his belief and views and suspicions about an individual. You should disregard those comments because his beliefs and views and suspicions are not relevant. It will be for you to decide. You are going to be presented with the evidence here as to this defendant and anything else that's important for you to consider, and you can decide whether or not that is sufficient to draw those conclusions yourself.

That would be one way of doing it. And then we would have to, for purposes of later on, determine if we have questions later for the jury to have read back, whether or not some of those pieces are then excised.

THE COURT: OK. I am not concerned about, so long as there is no inappropriate communication with him, just turning and saying "Hi, mom" at some point when the jury is not in the room, because there are lots of times -- now, for instance -- when the jury is not in the room. But when the jury is in the room, he should just continue looking forward.

By the way, we are going to move the -- we did move the monitor. Terrific.

So you will tell him.

THE COURT: We're going to go until 1 o'clock, as opposed to 12:45. Because of the fact that the jury had to be waiting around, I have had Joe order lunch for the jury to be brought in sort of an attempt to do something for them. But we'll go right 'til 1 o'clock. At 1 o'clock I have a sentencing in here. It is a narcotics case. And so I will need to have space, probably actually on this side because it will be somebody who has a marshal there. People are welcome to stay for that but I will need room on the tables.

Go ahead and bring in the jury, Joe. Oh, the witness. Is the witness coming?

THE COURT: All right. Ladies and gentlemen, let's all be seated.

And I want to apologize for our late start today. A couple of different things result from that. We do have lunch coming in for you folks. We will go to 1 o'clock and then we'll stop for our lunch break. I do apologize. We try not to have these kinds of things take up your time, and we'll try to use your time as efficiently as we can. We wouldn't have had that delay unless it was necessary, and I do apologize.

I want to remind you, sir, Mr. Der-Yeghiayan, that you are still under oath.

THE COURT: Oh, one thing. I had a note to myself.

Ladies and gentlemen, from time to time in documents you see redactions, which are just sort of black marks through documents. That is just because certain information is irrelevant, and so just don't even think about it. Just sort of ignore it.

Proceed.