Feds seize $1 billion in crypto stolen from Silk Road

The largest amount of illegal funds ever recovered by federal law enforcement came in the form of bitcoin in an offline drive stuffed in the bottom of a Georgia man’s linen closet.

Federal prosecutors announced Monday they had recovered $1.074 billion in bitcoin kept hidden by a Georgia man for just under a decade. The man in question, James Zhong of Gainesville, Georgia, allegedly pulled off a massive heist from the dark web drug market Silk Road back in 2012, but kept over 50,000 bitcoins in the most inconvenient place imaginable, a small computer in a “popcorn”. tin” under some blankets in the bathroom safe. At the time the central bank seized the crypto in 2021, it was worth close to $3.36 billion.

The US attorney’s office said that back in September 2012, when Silk Road was still in business as the premier way to buy drugs anonymously online, Zhong hatched a scheme to steal what at the time was a few hundred thousand dollars in crypto. Prosecutors wrote that the then-fraudster created nine fake accounts and filled them with between 200 and 2,000 bitcoins, then blew up the Silk Road system with over 140 transactions in less than a second that caused it to release 51,680 bitcoins, which Zhong then sent to other bitcoin wallets he controlled. According to the court documentsthen he ran some of that crypto through one cryptomixer to hide where it came from.

Tyler Hatcher, a special agent with the Internal Revenue Service’s criminal investigation arm, said in the release that Zhong “attempted to conceal his loot through a series of complex transactions that he hoped would be enhanced as he hid behind the mystery of the ‘dark web.’ ‘” U.S. Attorney Damian Williams said they used “cryptocurrency tracking and good old-fashioned police work” to find the funds that remained hidden for nearly a decade. While not elaborating on how they conducted the investigation, there have been other investigations that have able to trace these allegedly “anonymous” crypto transactions through wallet transfers and user activity tracking.

Prosecutors charged Zhong with wire fraud, and the man pleaded guilty on November 4. He was released on $310,000 bail the same day, according to court documents. In addition to all the digital assets seized by federal law enforcement, authorities also took about $661,900 in cash and some silver and gold bullion from his safe. Zhong was also forced to divest any interest he had in a real estate company.

Of course, back then bitcoin was still in its relatively nascent stages. The price of the world’s most popular cryptocurrency fluctuated around $10 to $11 and closed at $13.45 at the end of that year. That means his heist was just a modest $500,000 worth of bitcoin that he apparently never unloaded. Since the price of bitcoin increased in recent years, and even with the ongoing crypto winter, those few hundred thousand have turned into billions. Another early bitcoin investor, James Howells from the UK, has repeatedly tried to recover lost bitcoin from a dump he mined back in the early days of crypto which is worth big bucks in today’s market.

The wire fraud charges could mean up to 20 years in prison, although Zhong’s sentencing is not until February. Zhong’s lawyer, Michael Bachner of the New York law firm Bachner and Associates, told Gizmodo in an email “Mr. Zhong is extremely remorseful for his conduct that occurred over 10 years ago when he was only 22 years old. Mr. Zhong returned practical counted all the bitcoin he ill-gotten Ironically, given the rise in bitcoin value over the past decade, the value of the bitcoin he returned exponentially exceeded the value of the bitcoin he took.

The feds said they executed a search warrant at Zhong’s home on Nov. 9 last year, where they found a single-board computer disconnected from the Internet in an underground safe “submerged under blankets in a popcorn box stored in a bathroom cabinet.” Although he kept the bitcoin in his personal wallets, when bitcoin was executed a hard fork in 2017, which established the new bitcoin as well as Bitcoin Cash, Zhong received an identical amount of the new cryptocurrency, which counted among the FB’s total crypto asset intake. According to the release, Zhong surrendered a little more than 1,000 bitcoin that he had access to.

As noted by the US Attorney’s Office in court ddocumentsbecause Silk Road founder Ross Ulbricht was convicted of running the drug-dealing operation in 2015, the federal government argues that Zhong’s bitcoin is open to seizure after being implicated in Ulbrichit is a charge of money laundering. Although crypto drug trafficking was hit hard thanks to the loss of Silk Road, it is other, smaller dark web operations plus larger arrangements still trying to monetize anonymous transactions.

Other crypto robbery has recently targeted DeFi projects and cross-chain bridges, often squandering thousands or millions of dollars in the process, making Zhong’s original 2012 robbery look like lemonade stand robbery in comparisonat least when the fraud was originally completed.