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Feds Rescued $3.36 Billion Of Bitcoin In Second-Biggest Seizure In US

Some of the stash was found in a popcorn tin stored in a bathroom closet.

author

Tom Hale

Senior Journalist

clockNov 8 2022, 17:27 UTC
physical bitcoin and hard drives seized by US authorities
Physical bitcoin and hard drives seized by US authorities. Image credit: US DOJ

Over 50,000 Bitcoins that were stolen from the online black market Silk Road have been seized by US authorities. When the cryptocurrency was seized it was worth $3.36 billion, making the catch the US Department of Justice’s (DOJ) largest cryptocurrency seizure ever at the time. 

On November 4, 32-year-old James Zhong pled guilty to committing wire fraud in September 2012 when he unlawfully obtained over 51,680 Bitcoin from Silk Road. 

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The stolen stash of crypto was found during a search of his home in Gainesville, Georgia, that occurred in November 2021, but authorities have only just released a public statement about the case following his guilty plea. 

For the nine years between the crime and the raid, the whereabouts and identity of Zhong were uncertain. Nevertheless, law enforcement eventually managed to pinpoint the culprit using, what they call, “state-of-the-art cryptocurrency tracing and good old-fashioned police work.”

A safe full of money and hard drives found by US police in a cryptocurrency seizure.
Another photo taken during the rain on Zhong's home. Image credit: US DOJ


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

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In February 2022, officials seized more than 94,000 Bitcoin, valued at around $3.6 billion at the time, which overtook Zhong's case as the largest seizure in US history. Even today, however, this new case remains the DOJ's second-largest financial seizure ever. 

Since the falling fortunes of crypto this year, the stash has lost over two-thirds of its value and is now worth around $972 million, as of November 8, 2022. 

Catching Zhong was no small feat. The cryptocurrency was stored on a number of different “cold wallet” hard drives dotted around his house, including some in an underground floor safe. One stash was even stored on a circuit board that was submerged under blankets in a popcorn tin stored in a bathroom closet. 

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Before they even identified his whereabouts, identifying Zhong was not easy given the anonymity built into cryptocurrency exchanges on the blockchain. 

He pulled off the wire fraud attempt in September of 2012 by creating at least nine fake accounts on Silk Road, the dark web marketplace where users can buy drugs and other illicit products using cryptocurrency. The marketplace's founder, Ross Ulbricht, is now serving a life sentence in prison.

Banknotes seized by police on the floor
Yet another from the raid. Image credit: US DOJ


Zhong managed to find a way to trigger over 140 transactions in rapid succession in order to trick Silk Road’s withdrawal processing system into releasing approximately 50,000 Bitcoin from its payment system. The loot was then dispersed into multiple accounts and was then transferred to multiple Bitcoin wallets. 

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In August 2017, a transfer made by Zhong allowed investigators to track the missing coins to accounts on an unnamed cryptocurrency exchange, which eventually led them to his identity.

“Mr. Zhong executed a sophisticated scheme designed to steal bitcoin from the notorious Silk Road Marketplace. Once he was successful in his heist, he attempted to hide his spoils through a series of complex transactions which he hoped would be enhanced as he hid behind the mystery of the ‘darknet.’ IRS-CI [Internal Revenue Service, Criminal Investigation] Special Agents are the best in the world at following the money through cyberspace or wherever our financial investigations lead us. We will continue to work with our partners at the US Attorney’s Office to track down these criminals and bring them to justice,” added IRS-CI Special Agent in Charge Tyler Hatcher said.

Zhong is set to scheduled to be sentenced on February 22, 2023, on one count of wire fraud, which carries a maximum sentence of 20 years in prison.


technologyTechnology
  • tag
  • internet,

  • crime,

  • criminal,

  • Silk Road,

  • cryptocurrency,

  • Bitcoin

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