On Monday, November 7th, 2022, the U.S. Department of Justice announced the seizure of $3.36 billion of Bitcoin by from a house in Gainesville, Georgia.
James Zhong, a 32-year-old computer graduate, unlawfully obtained over 50,000 Bitcoin from Ross Ulbricht’s Silk Road marketplace on the Dark Web more than a decade ago and hid it in devices inside his home.
On November 4th, almost a year after the seizure, Zhong finally pled guilty to committing wire fraud in 2012 and has agreed to help prosecutors access the remaining coins and provide the technical assistance to do so.
For your information, in November of 2021, authorities seized more than 50,676 Bitcoin removed from electronic devices in defendant Zhong’s home.
In what was the largest cryptocurrency seizure at the time (surpassed by the 70,000 Bitcoin seized in relation to a Bitfinex hack in February), investigators conducted a raid on Zhong’s house and found approximately 50,676 Bitcoin in November last year, then valued at over $3.36 billion. Now, however, they’re worth $1.04 billion since the digital currency dropped from trading at over $60,000 to around $21,000.
It is worth noting that in November 2020, in another investigation, the Feds seized $1 billion in Bitcoin linked to the Silk Road marketplace after identifying 54 undetected cryptocurrency transactions linked to the seized marketplace.
Along with the Bitcoin which was found in an underground safe and a single-board computer in a popcorn tin under a pile of blankets in Zhong’s bathroom closet, law enforcement also recovered $661,900 in cash, 25 Casascius coins, an additional 11.116 Bitcoin, and silver, and gold-colored bars.
As part of his plea agreement, he also signed over his 80% stake in RE&D Investments, LLC, a Memphis-based company with substantial real estate holdings. Court records show that Zhong studied computer science at the University of Georgia before joining the real estate market and starting his own company, RE&D Investments.
In 2012, when Zhong was just 22 years old, he executed a scheme to defraud Silk Road, a notorious dark web marketplace infamous for the distribution of illegal drugs and money laundering.
By creating a string of accounts and triggering over 140 transactions in rapid succession, he tricked Silk Road’s withdrawal-processing system into releasing approximately 50,000 Bitcoin which he then transferred into a variety of separate addresses under his control.
At the time of committing wire fraud, Zhong did not list for sale or buy any item or service on Silk Road, and even while he registered the accounts, he did so by providing the bare minimum information required, thus planning the scheme in a manner designed to prevent detection, conceal his identity and ownership, and obfuscate the Bitcoin’s source.
In the DoJ’s press release, Damian Williams, U.S. Attorney for the Southern District of New York said:
“Thanks to state-of-the-art cryptocurrency tracing and good old-fashioned police work, law enforcement located and recovered this impressive cache of crime proceeds.” […] “This case shows that we won’t stop following the money, no matter how expertly hidden, even to a circuit board in the bottom of a popcorn tin.”
The founder of Silk Road, the then-anonymous “Dread Pirate Roberts” later uncovered as Ross Ulbricht, was unanimously convicted by a jury in 2015 of seven criminal counts and sentenced to life in prison. The coins stolen by Zhong were proceeds stemming from Ulbricht’s crimes which meant that he had no victim restitution to pay, according to his plea agreement.