Ross Ulbricht, 29, allegedly ran a website called Silk Road under the name of "Dread Pirate Roberts."
FBI Agent Christopher Tarbell alleged in an affidavit filed in federal court in New York City that the website "served as a sprawling black market bazaar" for drugs and other illegal items.
The agent said investigators estimate the site conducted about $1.2 billion in sales in the past two and one-half years and gained about $80 million in commissions.
Ulbricht is accused of narcotics conspiracy, computer hacking conspiracy and money laundering conspiracy in a federal criminal complaint filed by U.S. prosecutors in New York City.
U.S. Magistrate Joseph Spero Wednesday ordered Ulbricht kept in custody for the time being.
Spero ordered Ulbricht to return to his court at 9:30 a.m. Friday for a detention hearing and for scheduling of a future hearing on whether he should be transferred to New York City to face the charges there.
Ulbricht was arrested in the science fiction section of the Glen Park branch of the San Francisco Public Library shortly after 3 p.m. Tuesday, according to library spokeswoman Michelle Jeffers.
Jeffers said library staff members reported that they heard a crashing sound and thought a patron might have fallen to the ground.
Instead, they saw Ulbricht, wearing blue jeans and a T-shirt, surrounded by six to eight plainclothes FBI agents.
The agents said "We're the FBI," flashed their badges, and walked out with Ulbricht, who did not resist the arrest, Jeffers said.
The spokeswoman said the agents had entered the small library building unobtrusively and not in a group, and the staff members were not aware of their presence until the arrest.
Tarbell said in the affidavit, which was filed with the complaint,
that Ulbricht appeared to have been living at a series of addresses in
San Francisco in recent months.
The complaint alleges that as part of the narcotics conspiracy, Ulbricht in March solicited by e-mail a $150,000 murder-for-hire of a Canadian man who was threatening to release the identities of thousands of Silk Road users unless Ulbricht gave him $500,000.
But Tarbell said in the affidavit that Canadian authorities could find no record that the alleged victim was the target of a murder solicitation or that anyone in his hometown of White Rock, British Columbia, was killed on the supposed March 31 murder date.
Tarbell alleged in the document that several thousand drug dealers and other vendors used Silk Road to sell drugs "of nearly every variety," including heroin, cocaine, LSD and methamphetamine, as well as computer hacking software and forged identity documents.
The agent wrote, "Silk Road has emerged as the most sophisticated and extensive criminal marketplace on the Internet today.
"The site has sought to make conducting illegal transactions on the Internet as easy and frictionless as shopping online at mainstream e-commerce websites," Tarbell asserted.
Tarbell wrote that Ulbricht operated the site on a hidden network called Tor and required transactions to be paid with "Bitcoins," an electronic currency designed to be as anonymous as cash.
Ulbricht had a small staff of administrators, but owned, supervised and controlled the site, Tarbell alleged.
The earliest online publicity that investigators found of Silk Road was dated January 2011.
Ulbricht, originally from Austin, Texas, said in an online video from December 2012 that he had moved to San Francisco in October 2012 at the urging of his best friend Rene Pinnell.
Pinnell, who has started various startup companies including Storybox, is listed at living in the 400 block of Hickory Street.
In the video, filmed three months after moving in with his best friend, Ulbricht said, "The crazy thing about San Francisco is it feels like home already."
He said he had previously been living at his parents' home in Austin. Ulbricht's online profile on LinkedIn states he received a B.S. in physics from the University of Texas in 2006 where he was involved with Society of Physics Students.
He attended Westlake High School in Austin and graduated in 2002.
He went on to study materials sciences and engineering at Pennsylvania State University where he wrote a master's thesis in Spring 2009 before shifting his goals to "creating an economic simulation," according to the profile.
On his LinkedIn profile he lists his current position as an investment adviser and entrepreneur.
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