US government seizes $3.36 billion in cryptocurrency from Silk Road scam

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(Kitco News) – US Department of Justice and Internal Revenue Service announced on Monday that James Zhong has pleaded guilty to wire fraud in September 2012 when he stole over 50,000 Bitcoin worth $3.36 billion from the Silk Road dark web internet market.

“James Zhong committed wire fraud over a decade ago when he stole approximately 50,000 Bitcoins from Silk Road,” US Attorney Damian Williams said in a statement. “For almost ten years, the whereabouts of this huge chunk of missing Bitcoin ballooned into a mystery of over $3.3 billion.”

Silk Road was an online ‘darknet’ black market that operated from approximately 2011 to 2013. It was used to sell drugs and other illegal goods and to launder any money that passed through it. In 2015, Silk Road founder Ross Ulbricht was convicted of seven drug and conspiracy counts and sentenced to life in prison.

In September 2012, Zhong created nine Silk Road accounts with an initial deposit of between 200 and 2,000 Bitcoin, and by triggering over 140 transactions in quick succession, he was able to withdraw many times more Bitcoin from Silk Road than he had initially tricked its payout processing system into releasing over 50,000 Bitcoin. Zhong then transferred the Bitcoin to separate addresses to prevent detection, conceal his identity, and conceal the Bitcoin’s origin.

Then, in August 2017, Bitcoin underwent a hard fork coin split and split into two cryptocurrencies, traditional Bitcoin (BTC) and Bitcoin Cash (BCH). When this split took place, Zhong received 50,000 Bitcoin Cash on top of the 50,000 Bitcoin he had stolen from Silk Road. After converting BCH to BTC, Zhong was left with approximately 53,500 Bitcoin in total.

The Nov. 9, 2021, federal law enforcement executed a search warrant at Zhong’s home in Gainesville, Georgia, where they found 50,676 Bitcoins, then worth over $3.36 billion. This was the largest cryptocurrency seizure in the history of the US Department of Justice and remains the department’s second largest financial seizure ever.

IRS agents found 50,491 Bitcoins in an underground safe and on a single desktop computer buried under blankets in a popcorn can stored in a bathroom cabinet. They also got gold and silver, other cryptocurrency and $661,900 in cash. In March 2022, Zhong also surrendered over 1000 additional Bitcoin.

“Thanks to state-of-the-art cryptocurrency tracking and good old-fashioned policing, law enforcement found and recovered this impressive cache of crime proceeds,” Williams said. “This case shows that we don’t stop following the money, no matter how cleverly hidden, even to a printed circuit board at the bottom of a popcorn can.”

On Friday Nov. 4, 2022, Zhong pleaded guilty to one count of wire fraud, which carries a maximum penalty of 20 years in prison. Zhong is scheduled to be sentenced on February 22, 2023.



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