US Seized $3.36 Billion in Crypto Currency Stolen 10 Years ago from Silk Road Dark Web

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

The U.S. Department of Justice announced Monday that it seized about $3.36 billion in stolen bitcoin during a previously unannounced 2021 raid on the residence of James Zhong. U.S. authorities seized about 50,676 bitcoin, then valued at over $3.36 billion, from Zhong during a search of his house in Gainesville, Georgia, on Nov. 9, 2021, the DOJ said. It is the DOJ’s second-largest financial seizure to date, following its seizure of $3.6 billion in allegedly stolen cryptocurrency linked to the 2016 hack of the crypto exchange Bitfinex, which the DOJ announced in February.

The Silk Road dark web marketplace operated from 2011 until being shut down in 2013.

According to authorities, Zhong stole bitcoin from the illegal Silk Road marketplace, a dark web forum on which drugs and other illicit 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 almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery,” U.S. Attorney Damian Williams said in a press release. According to the Southern District of New York, Zhong took advantage of the marketplace’s vulnerabilities to execute the hack.

Special Agent in Charge Tyler Hatcher, of the Internal Revenue Service – Criminal Investigation, said Zhong used a “sophisticated scheme” to steal the bitcoin from Silk Road. According to the press release, in September 2012, Zhong created nine fraudulent accounts on Silk Road, funding each with between 200 and 2,000 bitcoin. He then triggered over 140 transactions in rapid succession, which tricked the marketplace’s withdrawal-processing system to release approximately 50,000 bitcoin into his accounts. Zhong then transferred the bitcoin into a variety of wallet addresses all under his control.

The bitcoins were moved to various separate addresses controlled by Zhong in an effort to prevent detection, conceal their identity and ownership, and obfuscate the origin of the bitcoins.

In 2017, the bitcoin community forked, and users with bitcoin can receive another token called bitcoin cash (Bitcoin Cash, another cryptocurrency, roughly the same as bitcoin), with 50,000 bitcoins in his hand. Coins, he received another 50,000 Bitcoin Cash. Subsequently, Zhong transferred 50,000 Bitcoin Cash to an overseas cryptocurrency exchange and exchanged 3,500 bitcoins. At this point, he owns 53,500 bitcoins. 

Zhong’s online social media and forum profiles provided evidence of his involvement.

Through blockchain analysis and good old-fashioned police work, law enforcement and blockchain analytic experts was able to recover more than 50,000 bitcoin from Zhong. They even uncovered crypto stored on a computer submerged under blankets in a popcorn tin in a bathroom closet, according to the press release.

James Zhong’s since removed LinkedIn profile.

Public records show Zhong was the president and CEO of a self-created company, JZ Capital LLC, which he registered in Georgia in 2014. According to his LinkedIn profile, his work there focused on “investments and venture capital.” His profile also states he was a “large 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 airplanes, and at high-profile football games.

In 2019 Zhong called the police to “report a burglary.” He mentioned that numerous assets had been stolen, including “a lot of bitcoin.” This was apparently enough to get the attention of the IRS Criminal Investigation (IRS-CI) unit. After investigating and following specific wallet addresses, the IRS-CI and Athens police department made an arrest in November of 2021.

But these types of hacks didn’t end with the Silk Road’s demise. Crypto platforms continue to be 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 bug in a smart contract enabled hackers to exploit a cross-chain bridge, BSC Token Hub. As a result, the hackers withdrew the platform’s native cryptocurrency, called BNB tokens.

In March 2022, a different 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, which serve as passwords to protect cryptocurrency funds in wallets, were compromised. According to a Chainalysis report, $1.9 billion worth of cryptocurrency had been stolen in hacks of services through July 2022, compared with just under $1.2 billion at the same point in 2021.

Source DOJ, CNBC, China Gate, Protos