How a Dark Web Drug Ring Was Uncovered After Suspicious A.T.M. Withdrawals

[What you need to know to start the day: Get New York Today in your inbox.]

In 2017, the Manhattan district attorney’s office received a tip: Unusually large amounts of cash were being withdrawn from A.T.M.s throughout the city, including a series of transactions at a special teller machine that converted cryptocurrency to cash.

Prosecutors did not quite know what they had, but worked to identify precisely who had withdrawn the money, which exceeded $1 million.

What resulted was a two-year investigation that uncovered a multimillion-dollar drug operation on the dark web, a corner of the internet people can visit anonymously with special browsers and make purchases with virtual currencies like Bitcoin and Ethereum.

In recent years, drug trafficking on the dark web has exploded, as drug traffickers and other criminals have discovered that its anonymity makes it ideal for illicit transactions using cryptocurrencies.

“We have a cybercrime crisis that’s not yet fully appreciated,” Cyrus R. Vance Jr., the Manhattan district attorney, said at a news conference.

Prosecutors said three New Jersey men were behind an online store called Sinmed that sold and shipped illegal drugs to buyers in 43 states, Puerto Rico and Washington. Their products included heroin-laced fentanyl, counterfeit Xanax tablets, ketamine, LSD, the date-rape drug GHB, steroids and methamphetamine.

The men — Chester Anderson, 44; Jarrette Codd, 41; and Ronald MacCarty, 51 — then converted at least $2.3 million in cryptocurrency from their sales by using it to load prepaid debit cards and withdrawing cash from A.T.M.s, according to an indictment unsealed on Tuesday.

The three men used Mr. MacCarty’s cellphone store in Asbury Park, N.J. — The Wireless Spot — to house a drug factory with two industrial power mixers, punch dies to imprint pills with brand names and four pill presses, each of which could produce 16,000 pills per hour, prosecutors said.

Sinmed advertised its narcotics using two storefronts on a dark web shopping site called Dream Market, where, like its infamous predecessor, the Silk Road, a plethora of illegal drugs and other goods can be bought, the authorities said.

Investigators from the Manhattan district attorney’s office posed as buyers on the dark web and purchased over 10,000 tablets of counterfeit Xanax from Sinmed, along with significant quantities of GHB and ketamine, Mr. Vance said.

Federal investigators from the Secret Service, the Department of Homeland Security and the United States Postal Service also took part in the investigation, along with the Middlesex County prosecutor’s office and the South Brunswick Police.

To make their deliveries seem innocuous, Sinmed labeled its drug-laden envelopes with the return addresses of Manhattan law firms, real estate brokers and talent entertainment agencies, prosecutors said.

Mr. Anderson and Mr. MacCarty used a shell company to buy large quantities of microcrystalline cellulose, which is used to make pharmaceutical pills, as well as alprazolam, the active ingredient in Xanax, from chemical supply companies in China, prosecutors said.

The materials were used to cook up massive quantities of counterfeit drugs. When the authorities raided Mr. Codd’s home in Jamesburg, N.J., this month, they found five large orange buckets filled to the brim with at least 420,000 pills of fake Xanax, worth between $2 million and $4 million on the street. Investigators also found a “cookbook” with recipes for several illicit drugs, including GHB.

Mr. Anderson, Mr. Codd and Mr. MacCarty were arrested at separate locations in Central New Jersey on April 4, and arraigned Tuesday afternoon in Manhattan Supreme Court on charges of conspiracy and money laundering. Mr. Anderson was also charged with drug trafficking.

“These defendants perpetrated a yearslong drug-dealing enterprise and used sophisticated tech to reach customers across the United States,” Dan Haier, an assistant district attorney, told the court.

All three men entered not guilty pleas. Justice Maxwell Wiley set bail at $1 million for Mr. Anderson and $500,000 each for Mr. Codd and Mr. MacCarty.

Prosecutors said Mr. Anderson, whom they described as a ringleader, took extensive precautions to avoid detection, renting cars to drop off his drug deliveries, sleeping at hotels and using a GPS jamming device that scrambled a tracking device investigators placed on one of his cars.

Mr. Anderson, a software engineer, was convicted of attempted armed robbery in New Jersey in 2014 and was diverted from prison into drug treatment. His lawyer, Taylor Koss, said Mr. Anderson has been sober for five years and committed the robbery while in the throes of drug addiction.

Neither Mr. Codd nor Mr. MacCarty has criminal convictions.

Mr. Haier said during court proceedings that the opacity of dark web transactions in cryptocurrencies had hampered prosecutors’ efforts to find out how much money Sinmed took in and to whom it sold drugs.

“We are still attempting to locate cash and cryptocurrency that were profits of this enterprise,” Mr. Haier said.