In an unprecedented move, the Department of Justice (DoJ) has announced that it has arrested a “James Zhong” and seized over 50,000 bitcoins. The coins in question were originally stolen from the dark web marketplace the Silk Road back in 2012 — a full decade ago.
The press release by the DoJ explains how Zhong used an exploit to steal the bitcoin from Ross Ulbricht, founder and owner of the Silk Road, in September 2012. The value of the stolen goods at the time was ~$500,000. Today, that same stash is valued at over $1,000,000,000.
The statements from the DoJ also point to Zhong taking profit from a bitcoin fork, Bitcoin Cash, back in 2017 as helping to provide traceability to his maneuvers.
While not mentioned in the initial press release, Protos reached out to Lt. Shaun Barnett of the Athens, Georgia police department to explain how Zhong was flagged. According to Lt. Barnett, in 2019 Zhong called the police to “report a burglary.” He mentioned that numerous assets had been stolen, including “a lot of bitcoin.” This was apparently enough to get the attention of the IRS Criminal Investigation (IRS-CI) unit.
After investigating and following specific wallet addresses, the IRS-CI and Athens police department made an arrest in November of 2021. As of today, Zhong faces up to 20 years in prison for one count of wire fraud (he pleaded guilty and fully cooperated with authorities, so the likelihood he sees anywhere near 20 years in prison is almost zero).
There’s a lot of questionable behavior from Zhong in the memorandum provided.
Apparently, Zhong stored the billions of dollars worth of Bitcoin in “a floor safe” and a “popcorn tin.” Investigators seemed to have little trouble finding both.
Zhong also used an exchange to profit from the stolen bitcoin about five years after the exploit, seemingly in a way that was easy for investigators to trace.
Lastly, the defendant and another individual named Clayton Kemker ran a company in Tennessee called RE & D Investments, which, according to the press release, had “substantial real estate holdings” in the Memphis area.
Protos has reached out to the DoJ for further clarification and will update if and when we hear back.