Justice Department seizes billions in crypto from Silk Road scammer
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The U.S. Attorney for the Southern District of New York and the Internal Revenue Service's Criminal Investigation department said Monday that James Zhong pled guilty on Friday to stealing more than 50,000 bitcoin (BTC-USD) from the Silk Road dark web internet marketplace.
On Nov. 9, 2021, Zhong's home had been searched by law enforcement, which seized ~50,676 BTC, then valued at $3.36B, representing the second-largest crypto seizure in the U.S. Department of Justice's history.
"For almost ten years, the whereabouts of this massive chunk of missing bitcoin (BTC-USD) had ballooned into an over $3.3B mystery," said U.S. Attorney Damian Williams.
Silk Road was a "darknet" black market in operation between 2011 and 2013 that was used by drug dealers and others to distribute illicit goods and services and to launder funds, the DOJ said. In 2015, the site's founder Ross Ulbricht was convicted and sentenced to life in prison after an investigation by the office of the U.S. Attorney for the Southern District of New York.
By the end of 2017, Zhong had obtained ~53,500 bitcoin (BTC-USD) of total crime proceeds through a complex series of transactions on Silk Road through numerous accounts in which he withdrew more bitcoin than he deposited, the DOJ said. In the 2021 search of Zhong's premises, IRS-CI agents recovered ~50,491 bitcoin. They were located in an underground floor safe and on a single-board computer that was hidden under blankets in a popcorn tin stored in a bathroom closet.
At the same time, law enforcement recovered $661,900 in cash, 25 Casascius coins with an approximate value of 174 bitcoin (BTC-USD), 11.12 additional bitcoin, and some silver- and gold-colored bars.
In addition, Zhong later voluntarily surrendered to the government ~1,004 additional bitcoin (BTC-USD) that he had access to.
In connection with the guilty plea, Paul G. Gardephe entered a consent preliminary order of forfeiture for: Zhong's 80% interest in RE&D Investments, a Memphis-based company with real estate holdings; $661,900 of cash; the metal bars; 11 bitcoin seized on Nov. 9, 2021; the 25 Casascius coins, with a value of ~174 BTC, seized on the same date; and ~143 more bitcoin that Zhong had provided.
The government also filed a motion for a preliminary order of forfeiture, seeking ~51,352 bitcoin (BTC-USD) traceable to Silk Road, valued at ~$3.39B at the time of the seizure. On Nov. 3, the value of bitcoin was almost $66K per token. In recent trading, BTC is trading for ~$20.7K, putting the stash's value at ~$1.07B.
Zhong, who is 32 years old, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison. He's scheduled to be sentenced on Feb. 22, 2023.
The defendant's attorney didn't immediately respond to a request for comment.
The case is another high-profile example of authorities' ability to trace cryptocurrency thefts. In February, the Department of Justice arrested a couple who allegedly conspired to launder $4.5B of cryptocurrency stolen during the 2016 Bitfinex hack.