Department of Justice seized $3 billion in Bitcoin found in underground safe and popcorn tin after Silk Road fraud
The US Department of Justice has revealed a massive seizure of over 50,000 Bitcoin, the second biggest seizure the department has ever made.
The DoJ said that Bitcoin was seized from James Zhong who pled guilty to committing wire fraud in September 2012 when he unlawfully obtained over 50,000 Bitcoin from the Silk Road dark web internet marketplace. Zhong pled guilty on Friday, November 4.
The DoJ revealed it had seized 50,676.17851897 Bitcoin from devices at Zhong's home in November 2021, at which point the cache was valued at $3.36 billion. Today, thanks to falling prices, it's worth just under $1 billion.
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Nonetheless, the seizure was in November 2021 the largest cryptocurrency seizure in the DoJ's history and today remains its second largest financial seizure, the DoJ noted in a press release.
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During court proceedings, Zhong, was accused of defrauding Silk Road by creating about nine 'fraud accounts'. Zhong allegedly didn't use the 'fraud accounts' to trade on Silk Road. Instead, they were solely intended as part of the scheme to defraud Silk Road of Bitcoin, the DoJ notes.
Zhong deposited a given sum of Bitcoin into one of the 'fraud accounts' and then immediately executed several withdrawals of the same amount from that account. The quick succession of withdrawals tricked Silk Road's withdrawal-processing system into releasing more from its payment system than it should have. The initial sums deposited to the fraud accounts were of between 200 and 2,000 Bitcoins.
"As an example, on September 19, 2012, Zhong deposited 500 Bitcoin into a Silk Road wallet. Less than five seconds after making the initial deposit, Zhong executed five withdrawals of 500 Bitcoin in rapid succession — i.e., within the same second — resulting in a net gain of 2,000 Bitcoin," the DOJ explained.
In total, Zhong, triggered 140 transactions in quick succession to dupe Silk Road's payment systems into releasing the 50,000 Bitcoin into accounts he controlled. Zhong then allegedly transferred the Bitcoin to separate addresses.
When the Internal Revenue Service (IRS) criminal investigation division raided Zhong's house in November 2021, they found the 50,000 Bitcoin in an underground floor safe and on a single-board computer buried under blankets in a popcorn tin hidden in a bathroom closet.
Zhong, 32, of Gainesville, Georgia, and Athens, Georgia on Friday pled guilty to one count of wire fraud and faces a maximum of 20 years in prison when he is sentenced on February 22, 2023.
Silk Road was an online "darknet" black market that operated from 2011 until 2013 and was used by drug dealers and other criminals to distribute illicit goods and services to many buyers and to launder all funds passing through it. In 2015, Silk Road's founder Ross Ulbricht was convicted and sentenced to life in prison.