U.S Attorney Announces Historic Crypto Seizure Connected to Silk Road

Earlier this week, the U.S Department of Justice revealed that more than $3.36 Billion worth of Bitcoin was recently seized in connection with the infamous Silk Road case; marking the second-largest financial seizure in the history of the justice department.

The Silk Road was a notorious black market on the dark web where buyers and sellers could trade in illegal goods completely anonymously, thanks to its early adoption of blockchain technology. Each and every transaction conducted on the platform was required to use Bitcoin in a dark wallet to ensure that the identities of everyone involved were kept hidden from the watchful eye of law enforcement. The criminal marketplace was shut down permanently in 2013 after a joint investigation between the FBI, DEA, IRS and Customs.

The defendant James Zhong pled guilty last Friday to committing wire fraud nearly ten years after committing the crime. Zhong was able to steal a total of 53,500 Bitcoin from the Silk Road marketplace by utilising a sophisticated system of trickery. After setting up a long and complicated series of accounts to conceal his identity and funding each of them with an initial deposit, he triggered a series of transactions in rapid succession to confuse the withdrawal-processing system into releasing the same pot of coins into his accounts multiple times.

Zhong continued making these withdrawals until he had amassed 50,000 Bitcoin in just a few short days. These ill-gotten gains were very quickly moved out of the Silk Road and into two high-value accounts on another platform.

Five years later, Zhong was able to add even more Bitcoin to these accounts after a hard fork coin split divided Bitcoin into two distinct cryptocurrencies, traditional Bitcoin and Bitcoin Cash (BCH). At the time, any wallet that held a positive balance in traditional Bitcoin was given a matching amount of BCH. By taking advantage of this provision and using a foreign cryptocurrency exchange to convert the BCH back into Bitcoin, Zhong was able to add an additional 3,500 Bitcoin to his overall amount.

The stolen funds remained in Zhong’s possession until the 9th of November 2021 when law enforcement recovered 50,491 of the tokens from the defendant’s property in Gainesville, Georgia. The coins were split between an underground safe and a single-board computer that was hidden under a blanket inside a popcorn tin that was kept in a bathroom cupboard. Law enforcement officers also recovered an additional 11 Bitcoin, $661,900 in cash, 25 Casascius coins worth approximately 174 Bitcoin, 12 bars of various precious metals and a single gold coin.

Following this historic seizure, Zhong began to voluntarily surrender the remainder of his cryptocurrency fortune to law enforcement, providing them with a further 1004 in Bitcoin over several months.

This case is not the only billion-dollar seizure to have come from the Silk Road Marketplace since its closure in 2013. After a lengthy investigation alongside our partner Chainalysis, the DOJ seized more than 70,000 Bitcoins worth $1 Billion from a hacker known only as Individual X.

In a statement released on Monday, the U.S. Attorney for the Southern District of New York, Damian Williams, highlighted the persistence of law enforcement in this particular case:

“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. Thanks to state-of-the-art cryptocurrency tracing and good old-fashioned police work, law enforcement located and recovered this impressive cache of crime proceeds. 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.”

Likewise, IRS-CI Special Agent in Charge Tyler Hatcher was full of praise for his team of world-class investigators:

“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 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.”

While our co-founder & CEO Aidan Larkin was astonished by the size of the seizure, comparing it to the notorious 1MDB scandal on LinkedIn, he was keen to highlight the many possibilities provided by this kind of seizure:

“Seizures involving digital assets have repeatedly shown that they can outstrip non-digital assets by a country mile and there is a blueprint emerging of the art of the possible that can bring massive value back to countries to benefit citizens and victims.”

“This case is yet another incredible milestone in the nascent history of crypto asset recovery and is one of the main reasons Asset Reality exists - to help other governments and victims do the same. Imagine the good that can be done with that amount of money!”

If you would like to know more about our work in crypto-related frauds and asset recovery, contact connect@assetreality.com

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