Remember that guy who claims he threw out an old hard drive filled with bitcoin worth a small fortune? Well, this story is a little more dark and nefarious. Law enforcement officers recently announced the largest amount of illicit funds ever seized in US history after a Georgia man pleaded guilty to allegedly committing wire fraud for unlawfully obtaining over 50,000 Bitcoin from the Silk Road.
With a single Bitcoin worth almost $32,000 in Australia (AUD$31,663.52 at the time of writing), that’s an astronomical amount of dirty money that would have Walter White reconsidering his Breaking Bad empire business. So how did this crypto crim evade the feds for over a decade? A good chunk came from a disconnected drive found “submerged under blankets in a popcorn tin stored in a bathroom closet.”
The billion-dollar mystery lasted for over a decade until the 9th of November 2021, when law enforcement seized approximately 50,676.17851897 Bitcoin – then valued at over USD$3.36 billion – from the home of defendant James Zhong in Gainesville, Georgia. Fast forward to the 4th of November 2022, and Mr Zhong accepted a plea deal, pleading guilty to allegedly committing wire fraud in September 2012 after unlawfully obtaining bitcoin from the Silk Road dark web.
“For almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery,” said U.S. Attorney Damian Williams in a press release from the Department of Justice. “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.”
According to Williams, “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.” But how exactly did a disconnected hard drive inside a popcorn tin and its owner, James Zhong, elude the authorities for so long?
IRS-CI Special Agent in Charge Tyler Hatcher describes Mr Zhong’s “scheme to defraud” and steal bitcoin from the notorious Silk Road Marketplace as “a sophisticated scheme” that was hidden through “a series of complex transactions which he hoped would be enhanced as he hid behind the mystery of the ‘darknet.’”
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Mr Zhong’s plan was split into three parts: First, creating fraudulent accounts on the Silk Road to conceal his identity. Second, rapid transactions to trick the Silk Road withdrawal-processing, which somehow deposited approximately 50,000 bitcoin into Mr Zhong’s accounts.” And Thirdly, transferring the bitcoin to various separate addresses, also under Mr Zhong’s control. Court documents reveal Mr Zhong used a crypto mixer to conceal the origin of the fraudulent bitcoin.
Unfortunately for Mr Zhong, “IRS-CI Special Agents are the best in the world at following the money through cyberspace”, especially regarding the Dark Web. When you think of the Dark Web, many of us naturally think of the Silk Road. Inspired by the ancient trade route linking the Western world with the Middle East and Asia, this Silk Road was primarily used by criminals to distribute massive quantities of illicit goods and services bought exclusively through bitcoin.
According to the affidavit from Trevor McAleenan, Special Agent, Internal Revenue Service, approximately 1.5 million transactions occurred on the Silk Road between February 2011 and October 2013, involving approximately 9.9 million bitcoin, generating commissions of approximately 640,000 bitcoin for the Silk Road.
The Dark Web is essentially the part of the internet that isn’t visible to search engines. However, unlike the much larger ‘Deep Web’, which includes anything on the internet that is not indexed and accessible via search engines like Google, the Dark Web goes much deeper. Only accessible through specific browsers like Tor, according to Cryptopolitik and the Darknet, there was an “overwhelming presence of illicit content on the Tor darknet” in 2015, with 57 per cent of Dark Web pages hosting illicit material of some kind.
While the investigation details probably won’t be released anytime soon, Special Agent Hatcher said, “(Law Enforcement) will continue to work with our partners at the US Attorney’s Office to track down these criminals and bring them to justice.”
Mr Zhong was released on a $USD310,000 ($430,342) bail after pleading guilty on 4 November. A further $USD661,900 ($918,850) in cash, silver and gold bars, 25 Casascius coins (physical bitcoin) with an approximate value of 174 Bitcoin, 11.1160005300044 additional Bitcoin were also seized from Mr Zhong. Furthermore, Mr Zhong was forced to give up his 80 per cent interest in RE&D Investments, LLC, a Memphis-based company with substantial real estate holdings, and “voluntarily surrendered” an additional 1,004.14621836 bitcoin.
Facing a maximum sentence of 20 years in prison, Mr Zhong is scheduled to be sentenced on 22 February 2023.
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