“U.S. Attorney Announces Historic $3.36 Billion Cryptocurrency Seizure And Conviction In Connection With Silk Road Dark Web Fraud”, 2022-11-07 ():
In November 2021, Law Enforcement Seized Over ₿50,676 Hidden in Devices in Defendant James Zhong’s Home; Zhong Has Now Pled Guilty to Unlawfully Obtaining that Bitcoin From the Silk Road Dark Web in 2012
Damian Williams, the United States Attorney for the Southern District of New York, and Tyler Hatcher, the Special Agent in Charge of the Internal Revenue Service, Criminal Investigation, Los Angeles Field Office (“IRS-CI”), announced today that James Zhong pled guilty to committing wire fraud in September 2012 when he unlawfully obtained >₿50,000 from the Silk Road dark web internet marketplace. Zhong pled guilty on Friday, November 4, 2022, before United States District Judge Paul G. Gardephe.
On November 9, 2021, pursuant to a judicially authorized premises search warrant of Zhong’s Gainesville, Georgia, house, law enforcement seized ~$927,669,630.31₿50,676.178518972022, then valued at over $3.36 billion. This seizure was then the largest cryptocurrency seizure in the history of the US Department of Justice and today remains the Department’s second largest financial seizure ever. The Government is seeking to forfeit, collectively: ~₿51,680.32473733; Zhong’s 80% interest in RE&D Investments, LLC, a Memphis-based company with substantial real estate holdings; $661,900 in cash seized from Zhong’s home; and various metals also seized from Zhong’s home.
…Zhong’s Scheme to Defraud: …In September 2012, Zhong executed a scheme to defraud Silk Road of its money and property by (1) creating a string of ~9 Silk Road accounts (the “Fraud Accounts”) in a manner designed to conceal his identity; (2) triggering over 140 transactions in rapid succession in order to trick Silk Road’s withdrawal-processing system into releasing ~₿50,000 from its Bitcoin-based payment system into Zhong’s accounts; and (3) transferring this Bitcoin into a variety of separate addresses also under Zhong’s control, all in a manner designed to prevent detection, conceal his identity and ownership, and obfuscate the Bitcoin’s source.
While executing the September 2012 fraud, Zhong did not list any item or service for sale on Silk Road, nor did he buy any item or service on Silk Road. Zhong registered the accounts by providing the bare minimum of information required by Silk Road to create the account; the Fraud Accounts were merely a conduit for Zhong to defraud Silk Road of Bitcoin.
Zhong funded the Fraud Accounts with an initial deposit of ₿200–2,000. After the initial deposit, Zhong then quickly executed a series of withdrawals. Through his scheme to defraud, Zhong was able to withdraw many times more Bitcoin out of Silk Road than he had deposited in the first instance. As an example, on September 19, 2012, Zhong deposited ₿500 into a Silk Road wallet. Less than 5 seconds after making the initial deposit, Zhong executed 5 withdrawals of ₿500 in rapid succession—ie. within the same second—resulting in a net gain of ₿2,000. As another example, a different Fraud Account made a single deposit and over 50 Bitcoin withdrawals before the account ceased its activity. Zhong moved this Bitcoin out of Silk Road and, in a matter of days, consolidated them into two high-value amounts.
…The Government’s Seizure of Forfeitable Property: On November 9, 2021, pursuant to a judicially authorized premises search warrant (the “Search”), IRS-CI agents recovered ₿50,491.06251844 of the Crime Proceeds from Zhong’s Gainesville, Georgia, house. Specifically, law enforcement located ₿50,491.06251844 of the ₿53,500 Crime Proceeds (1) in an underground floor safe; and (2) on a single-board computer that was submerged under blankets in a popcorn tin stored in a bathroom closet. In addition, law enforcement recovered $661,900 in cash, 25 Casascius coins (physical bitcoin) with a value of ₿174, ₿11.1160005300044 additional, and 4 one-ounce silver-colored bars, 3 one-ounce gold-colored bars, 4 10-ounce silver-colored bars, and one gold-colored coin.
Beginning in or around March 2022, Zhong began voluntarily surrendering to the Government additional Bitcoin that Zhong had access to and had not dissipated. In total, Zhong voluntarily surrendered ₿1,004.14621836 additional.