Cryptocurrency fraud, cybercrime, fraud management and cybercrime
A real estate developer stole 50,000 Bitcoins from Dark Web Emporium a decade ago
David Perera (@daveperera,
7 November 2022
A Georgia real estate developer who a decade ago stole about 50,000 Bitcoins from the dark cybercrime site Silk Road pleaded guilty Friday to fraud, leading federal prosecutors on Monday to request the cryptocurrency’s formal seizure from Silk Road owner Ross Ulbricht , also known as “The Dread”. Pirate Roberts.”
Lawsuits show James “Jimmy” Zhong, 32, in 2012 exploited a flaw in the Silk Road cryptocurrency wallet triggered by rapid millisecond payouts. He stole about $577,000 in cryptocurrency based on a table of historical Bitcoin value. After dividing the stolen funds in an attempt to obscure their origin, Zhong stored Bitcoin on devices hidden in an underground safe and a “single desktop computer” stored in a popcorn can in a bathroom cabinet under a pile of blankets.
At least that’s where a criminal agent from the IRS found them during a November. 9 2021 raid on Zhong’s Ganisville, Ga., house that also yielded more than half a million dollars in cash, apparently precious metals and 25 physical Bitcoin tokens known as Casascius coins, worth approximately 174 Bitcoin. At the time of the federal raid, the recovered stolen cryptocurrency was worth $3.36 billion, which the Justice Department say was then the largest federal seizure of cryptocurrency and remains the second largest financial seizure of all time. The recovered cryptocurrency is now worth approximately $1 billion.
Zhong took one plea agreement demanding that he forfeit the stolen bitcoin, the cash and the contents of his safe, as well as his 80 percent stake in RE&D Development, a Memphis, Tenn., real estate group that has been fighting a creditor case in federal bankruptcy court since September . Zhong faces up to 20 years in prison after pleading guilty to one count of wire fraud.
The FBI arrested Ulbricht in 2013 at a San Francisco public library while he was logged into the Silk Road illegal marketplace from his laptop as a system administrator using his assumed name Dread Pirate Roberts. Since founding the website in 2011, Ulbricht paid approximately $650,000 in murder-for-hire schemes, although none of the five intended victims actually died as a result.
After his arrest, Ulbricht rejected an offer of a sentence of at least 10 years in prison. After a jury trail that resulted in a seven-felony conviction, Ulbricht is now serving a double life sentence without the possibility of parole in a maximum-security prison in Tucson, Ariz. A federal judge in June rejected Ulbricht’s attempt to overturn the sentence on constitutional grounds.
Federal prosecutors a standing forfeiture order against Ulbricht means the cryptocurrency recovered from Zhong is now federal property.
Zhong was able to steal the Bitcoin after discovering that he could trigger Silk Road’s payment processing system to pay out excess amounts by creating an account and then making payouts within the same second. That way, a deposit of 500 Bitcoin can result in a 2500 Bitcoin withdrawal.
In a few days, he created about nine user accounts and made 140 transactions.
U.S. Attorney Damian Williams for the Southern District of New York attributed Zhong’s capture to “state-of-the-art cryptocurrency tracking and good old-fashioned police work.”
A federal judge released Zhong on Friday on $310,000 bail.