In a nutshell: On November 9, 2021, law enforcement seized 50,676.17851897 Bitcoins from the Gainesville, Georgia, home of James Zhong. The haul was valued at around $3.36 billion at time of the seizure (which just happened to be right around Bitcoin’s all-time high). At the time, it was the largest cryptocurrency seizure in the history of the DOJ and remains the department’s second largest financial seizure ever.
The US Department of Justice on Monday announced a conviction in a case involving the seizure of $3.36 billion worth of Bitcoin.
According to authorities, Zhong unlawfully obtained the Bitcoins from former dark web marketplace Silk Road way back in 2012. He allegedly created nine Silk Road accounts (“fraud accounts”) designed to conceal his identity then triggered over 140 transactions in rapid succession to trick the site’s withdrawal-processing system into releasing the Bitcoins from its payment system into his accounts. Zhong then reportedly transferred the coins to other accounts in an effort to obfuscate the source and conceal his identity.
The Justice Department noted Zhong didn’t list any item or service for sale on Silk Road, nor did he purchase any item or service. Instead, he would fund his fraud accounts with an initial deposit of between 200 and 2,000 Bitcoins then quickly execute a series of withdrawals. This allowed him to withdraw many times more Bitcoins than he initially deposited.
In one transaction that took place on September 19, 2012, Zhong allegedly deposited 500 Bitcoins into a Silk Road wallet and then executed five withdrawals of 500 coins each – all within one second – which resulted in a net gain of 2,000 Bitcoins. In another cited example, Zhong made a single deposit and over 50 Bitcoin withdrawals.
During the November 9 seizure, authorities found Bitcoins in an underground floor safe and on a single-board computer hidden under blankets in a popcorn tin stored in a bathroom closet at Zhong’s home. More than half a million in cash was also recovered in addition to various amounts of precious metals. Zhong later surrendered more than 1,000 additional Bitcoins to the government.
Zhong pled guilty to one count of wire fraud, which carries a maximum penalty of 20 years in prison. He is scheduled to be sentenced on February 22, 2023.