The District Court had to address the following novel legal issues which had not yet been litigated:

1) whether the agreement required to support conspiracy charges could be established when the parties only interacted through automated, anonymous transactions;

2) whether it can be shown that buyers and sellers in an online marketplace are acting in concert at the direction of a person in a position of management; and

3) whether financial transactions can be conducted with Bitcoins, and thus, be used in money laundering.

The District Court reasoned that conspiracy agreements do not necessarily require an express agreement with all of the details of the conspiracy. It is sufficient to agree on the objective, or the unlawful end, of the conspiracy. Circumstantial evidence demonstrating knowledge of the criminal conduct contemplated or of the objective of the conspiracy will suffice. For example, demonstrating that a conspirator was present during certain conversations or that a conspirator received or expected profits can establish proof. In the present case, the government was able to show that Ulbricht collected tens of millions of dollars in commissions on illicit drug transactions, as well as transactions for malicious computer software and fake identification documents. The Court found that Ulbricht created Silk Road with the express purpose of facilitating anonymous, unlawful transactions, and that without third parties agreeing to use the site and participate in those unlawful transactions, there would be no use for the Silk Road. The fact that these agreements occurred over the computer does not mean that a meeting of the minds could not occur – the actions taken by the computer are carried out by a human. Hence, the District Court found that the required agreement could be established in cases of automated, anonymous transactions.

Similarly, the Court held that it was not required that Ulbricht engaged in a particular form of conduct with each of those he was acting in concert with in his continuing criminal enterprise. It was enough to show that thousands of drug dealers conducted transactions on the Silk Road with thousands of buyers. Further, Ulbricht not only designed and created the Silk Road, but he controlled the day-to-day operations including setting rules for buyers and sellers, determining commission rates, and policing rules violations, etc. The Court found that Ulbricht was operating at a position of organizer and management over the drug trafficking occurring on the Silk Road.

As far as Bitcoins are concerned, the Court found that the only value for Bitcoin is to pay for things. Bitcoin can be used directly to pay for things, or it can be converted to currency and then used to pay for things. Bitcoins were specifically designed to shield the proceeds from third party discovery of their unlawful origin. While Bitcoins may not have been included in traditional definitions of “currency” or “financial transactions,” the Court held that they are functionally equivalent, and thus, can be used to launder money.

Additionally, the District Court had to address the implications of the legal provision defining the U.S. Constitution’s Fourth Amendment’s nature when dealing with digital media and information exchange. Ulbricht argued that the evidence collected through the pen/trap orders and the warrants to search his laptop violated the Constitution and motioned to suppress the evidence collected in relation to the order. The district court denied this motion.

In addition to the seven nonviolent charges (distributing narcotics, distributing narcotics by means of the Internet, conspiring to distribute narcotics, engaging in a continuing criminal enterprise, conspiring to commit computer hacking, conspiring to traffic in false identity documents, and conspiring to commit money laundering), the defendant was suspected of ordering multiple murder for hire killings against those that threatened the privacy of himself and his Silk Road users. The evidence to indict him on these charges was not sufficient.

For the above reasons, the Court convicted the defendant of the seven nonviolent charges and sentenced him to life in prison.

The defendant appealed against the judgment of the district court, arguing that :

1) the district court erred in denying his motion to suppress evidence obtained in violation of the Fourth Amendment;

2) the district court committed several errors that deprived him of his right to a fair trial, and incorrectly denied his motion for a new trial; and

3) his life sentence was both procedurally and substantively unreasonable.

The Court of Appeals did not find any errors in the district court’s judgment and affirmed it in all respects. In relation to the pen/trap orders and warrants, the Court argued that Ulbricht had no privacy expectation for information he turned over to third parties voluntarily on his website, and that they did not violate the Fourth Amendment.