Feds seize $3.36 billion in bitcoin, second largest seizure to date

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The crypto market has been battered this year, with nearly $2 trillion wiped off its value since the peak.

Jonathan Raa | Nurphoto | Getty Images

The Ministry of Justice announced on Monday that it seized approx $3.36 billion in stolen bitcoin during a previously unannounced 2021 raid on James Zhong’s residence.

Zhong pleaded guilty Friday to one count of wire fraud, which carries a maximum penalty of 20 years in prison.

US authorities seized about 50,676 bitcoins from Zhong during a search of his house in Gainesville, Georgia in November. 9, 2021, the Justice Department said, announcing details of the department’s second-largest financial seizure to date. It follows the $3.6 billion in allegedly stolen cryptocurrency linked to the 2016 hack of cryptocurrency exchange Bitfinex.

According to authorities, Zhong stole bitcoin from the illegal Silk Road marketplace, a dark web forum where drugs and other illegal products were bought and sold with cryptocurrency. Silk Road was launched in 2011, but the Federal Bureau of Investigation shut it down in 2013. Its founder, Ross William Ulbricht, is now serving a life sentence in prison.

“For nearly ten years, the whereabouts of this massive chunk of missing Bitcoin ballooned into a mystery of over $3.3 billion,” said US Attorney Damian Williams.

According to the Southern District of New York, Zhong exploited marketplace vulnerabilities to carry out the hack.

IRS-CI Special Agent in Charge Tyler Hatcher said Zhong used a “sophisticated scheme” to steal bitcoin from the Silk Road marketplace. According to the press release, in September 2012, Zhong created nine fraudulent accounts on Silk Road, each funded with between 200 and 2,000 bitcoin. He then triggered over 140 transactions in quick succession, tricking the marketplace’s payout system into releasing approximately 50,000 bitcoins into his accounts. Zhong then transferred the bitcoin to a series of wallet addresses, all under his control.

Public records show Zhong was president and CEO of a self-created company, JZ Capital LLC, which he registered in Georgia in 2014. According to his LinkedIn profilehis work there focused on “investments and venture capital.”

His profile also says he was a “major early bitcoin investor with extensive knowledge of its inner workings,” and that he had software development experience in computer programming languages.

Zhong’s social media profiles include pictures of him on yachts, in front of planes and at high-profile football matches.

But these types of hacks did not end with the death of the Silk Road. Crypto platforms remain vulnerable to criminals.

In October 2022, Binance, the world’s largest crypto exchange by trading volume, suffered a $570 million hack. The company said a flaw in a smart contract allowed hackers to exploit a cross-chain bridge, the BSC Token Hub. As a result, the hackers withdrew the platform’s native cryptocurrency, called BNB tokens.

In March 2022, another hacker found vulnerabilities in the decentralized finance platform, Ronin Network, and made off with more than $600 million – the largest hack to date. The private keys that serve as passwords to protect the cryptocurrency funds in a wallet were compromised.

According to one Chain analysis report$1.9 billion in cryptocurrency had been stolen in hacks of services through July 2022, compared to just under $1.2 billion at the same time in 2021.

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