Raid

The US Justice Department revealed Monday that it seized approximately 3.36 billion USD in stolen Bitcoin throughout an impromptu 2021 raid on James Zhong’s residence.

Zhong pled guilty to one count of wire fraud on Friday and it carries a maximum prison sentence of 20 years.

According to the DOJ, on Nov. 9, 2021, US authorities seized approximately 50,676 Bitcoin, which was then valued at more than 3.36 billion USD, from Zhong throughout a search of his residence in Gainesville, Georgia. 

It is the DOJ’s second-largest financial seizure to date, following its February unveiling of 3.6 billion USD in illegally obtained cryptocurrency connected to the 2016 hack of the crypto exchange Bitfinex.

Authorities claim Zhong robbed Bitcoin out of the illegal Silk Road marketplace, a dark web forum where drugs and other illegal goods were bought and sold with cryptocurrency. Silk Road was established in 2011, but it was shut down by the FBI (the Federal Bureau of Investigation) in 2013. Ross William Ulbricht, its founder, is currently serving his life sentence in a jail cell.

“For almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery,” U.S. Attorney Damian Williams stated a press release.

Source: cnbc.com

As reported by the Southern District, New York, Zhong used vulnerabilities in the marketplace to carry out the hack.

Internal Revenue Service Criminal Investigation Special Agent in charge, Tyler Hatcher stated that Zhong used a sophisticated scheme to seize the stolen Bitcoin from Silk Road. Following the press release, Zhong generated nine fraudulent Silk Road accounts in September 2012, financing each with between 200 Bitcoin and 2,000 Bitcoin.

He then executed over 140 transactions in quick succession, fooling the marketplace’s withdrawal-processing system into releasing roughly 50,000 Bitcoin into his accounts. Zhong then deposited the Bitcoin to several wallet addresses that he controlled.

Law enforcement and blockchain analytic experts were able to recover more than 50,000 stolen Bitcoin from Zhong through blockchain assessment and good old-fashioned police work. Based on the press release, they even discovered crypto stored on a computer buried beneath blankets found in a popcorn tin placed in a bathroom closet.

According to public records, Zhong was the CEO and president of a self-made firm, JZ Capital LLC, which he enrolled in Georgia in 2014. As per his LinkedIn profile, his job there was focused on investments and venture capital.

His profile also states that he was a large early Bitcoin investor with deep experience and knowledge of its inner workings and also, that he had experience in software development in various coding languages.

Pictures of Zhong on yachts, in front of aircraft, and at high-profile football matches can be found on his social media profiles.

However, such types of cheats did not stop with the demise of the Silk Road. Criminals continue to target cryptocurrency platforms.

Binance, the nation’s biggest crypto exchange calculated by trading volume, was hacked for $570 million in October 2022. According to the company, hackers were able to exploit a cross-chain bridge, BSC Token Hub, due to a bug in a smart contract. As a result, the cybercriminals withdrew BNB tokens, the platform’s native cryptocurrency.

A different hacker discovered vulnerabilities in the decentralised finance platform Ronin Network in March 2022 and stole more than 600 million USD and became the largest hack to date. Private keys were compromised which act as passwords to secure cryptocurrency funds in wallets.

According to a Chainalysis report, through July 2022, $1.9 billion in cryptocurrency had been stolen in service hacks, compared to just below 1.2 billion USD at the same point in 2021.