FBI seizes $3.36 billion worth of bitcoin in connection with the Silk Road dark web fraud, the largest crypto seizure ever

The US Department of Justice (DOJ) announced today it seized more than $3.36 billion worth of bitcoin in connection with the Silk Road dark web fraud. The Department announced today that JAMES ZHONG 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, 2022, before United States District Judge Paul G. Gardephe.

This announcement also follows our February report after the FBI seized over $3.6 billion worth of bitcoin from a couple that hacked into cryptocurrency exchange Bitfinex in 2016. At the time, the DOJ seized more than 94,000 bitcoin, which were valued at around $3.6 billion at the time of seizure. In all, the total stolen bitcoin is presently valued at approximately $4.5 billion, according to the agency.

On November 9, 2021, the DOJ issued an authorized premises search warrant of ZHONG’s Gainesville, Georgia, house, law enforcement seized approximately 50,676.17851897 Bitcoin, then valued at over $3.36 billion.

The Government is seeking to forfeit, collectively: approximately 51,680.32473733 Bitcoin; ZHONG’s 80% interest in RE&D Investments, LLC, a Memphis-based company with substantial real estate holdings; $661,900 in cash seized from ZHONG’s home; and various metals also seized from ZHONG’s home.

U.S. Attorney Damian Williams said: “James Zhong committed wire fraud over a decade ago when he stole approximately 50,000 Bitcoin from Silk Road. For almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery. 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. 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.”

IRS-CI Special Agent in Charge Tyler Hatcher said: “Mr. Zhong executed a sophisticated scheme designed to steal bitcoin from the notorious Silk Road Marketplace. Once he was successful in his heist, he attempted to hide his spoils through a series of complex transactions which he hoped would be enhanced as he hid behind the mystery of the ‘darknet.’ IRS-CI Special Agents are the best in the world at following the money through cyberspace or wherever our financial investigations lead us. We will continue to work with our partners at the US Attorney’s Office to track down these criminals and bring them to justice.”

According to the allegations contained in filings in Manhattan federal court and statements made during court proceedings:

ZHONG’s Scheme to Defraud

Silk Road was an online “darknet” black market. In operation from approximately 2011 until 2013, Silk Road was used by numerous drug dealers and other unlawful vendors to distribute massive quantities of illegal drugs and other illicit goods and services to many buyers and to launder all funds passing through it. In 2015, following a groundbreaking prosecution by this Office, Silk Road’s founder Ross Ulbricht was convicted by a unanimous jury and sentenced to life in prison.

“In September 2012, ZHONG executed a scheme to defraud Silk Road of its money and property by (a) creating a string of approximately nine Silk Road accounts (the “Fraud Accounts”) in a manner designed to conceal his identity; (b) triggering over 140 transactions in rapid succession in order to trick Silk Road’s withdrawal-processing system into releasing approximately 50,000 Bitcoin from its Bitcoin-based payment system into ZHONG’s accounts; and (c) transferring this Bitcoin into a variety of separate addresses also under ZHONG’s control, all in a manner designed to prevent detection, conceal his identity and ownership, and obfuscate the Bitcoin’s source,” the DOJ said.