The United States Attorney’s Office for the Southern District of New York has announced that an individual has pled guilty to wire fraud charges connected to “unlawfully obtained” Bitcoin from the Silk Road marketplace in 2012.
In a Nov. 7 announcement, the U.S. Department of Justice said James Zhong pled guilty to wire fraud charges related to executing a scheme to steal roughly 50,676 Bitcoin (BTC) from Silk Road. Authorities seized the Bitcoin from Zhong’s home in the state of Georgia in November 2021, at which time the total value of the crypto was roughly $3.36 billion.
“James Zhong committed wire fraud over a decade ago when he stole approximately 50,000 Bitcoin from Silk Road,” said U.S. Attorney Damian Williams. “For almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery.”
Williams cited “state-of-the-art cryptocurrency tracing” and “good old-fashioned police work” in the authorities tracking down and recovering the stolen BTC. Internal Revenue Service special agents raided Zhong’s property, finding more than 50,491 BTC in a floor safe and “on a single-board computer that was submerged under blankets in a popcorn tin” in addition to another hoard of more than 11 BTC, $661,900 in cash, and 25 Casascius coins worth roughly 174 BTC. Williams commented:
“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.”
According to the Justice Department, Zhong’s scheme involved creating nine accounts on the marketplace to conceal his identity and triggering more than 140 transactions in short order “to trick Silk Road’s withdrawal-processing system” to send the BTC. He was able to set up the accounts with “the bare minimum of information” and didn’t conduct any listings or sales. After withdrawing more BTC than he had deposited, Zhong moved the funds out of Silk Road and “consolidated them into two high-value amounts.”
“As an example, on September 19, 2012, Zhong deposited 500 Bitcoin into a Silk Road wallet,” said the Department of Justice. “Less than five seconds after making the initial deposit, Zhong executed five withdrawals of 500 Bitcoin in rapid succession — i.e., within the same second — resulting in a net gain of 2,000 Bitcoin.”
Related: DoJ seizes $3.6B in crypto and arrests two in connection with 2016 Bitfinex hack
Silk Road, defunct for almost ten years, originally allowed users to buy and sell illicit goods such as weapons and stolen credit card information. However, the marketplace drew the attention of the Federal Bureau of Investigation as many listings were for illegal drugs.
Silk Road creator Ross Ulbricht was arrested for his role in 2013 and is currently serving two life sentences without the possibility of parole. Zhong could face up to 20 years in prison for wire fraud. He is expected to be sentenced in February 2023.