Back in November of 2021, law enforcement agents seized 50,491.06251844 Bitcoin from James Zhong's house, along with other assets including cash, physical Bitcoin, and precious metals. The total value of all Bitcoin seized is approximately $3.4 billion. Additionally, Zhong voluntarily surrendered 1,004.14621836 additional Bitcoin in or around March 2022.
On April 14, 2023, Zhong appeared in federal court in the Southern District of New York and was sentenced to one year and one day in prison for committing wire fraud. The government charged that back in September 2012, Zhong unlawfully obtained approximately 50,000 Bitcoin from the Silk Road dark web internet marketplace. Crypto Criminal Defense Lawyer
Silk Road, a notorious online "darknet" black market, was operational from 2011 to 2013. It facilitated the distribution of illegal drugs and other illicit goods and services and was used to launder money. In 2015, the platform's founder, Ross Ulbricht, was convicted and sentenced to life in prison. See United States v. Ulbricht
The government charged that Zhong defraud the Silk Road marketplace by:
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Creating approximately nine Silk Road accounts (the "Fraud Accounts") to conceal his identity;
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Triggering over 140 transactions in rapid succession to trick Silk Road's withdrawal-processing system into releasing approximately 50,000 Bitcoin into his accounts;
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Transferring the Bitcoin into various separate addresses under his control to prevent detection and conceal his identity and ownership.
Zhong did not list or buy any items or services on Silk Road. Zhong’s fraud accounts were instead allegedly used as a conduit to defraud Silk Road of Bitcoin.
ZHONG funded the Fraud Accounts with an initial deposit of between 200 and 2,000 Bitcoin. After the initial deposit, ZHONG then quickly executed a series of withdrawals. Through his scheme to defraud, ZHONG was able to withdraw many times more Bitcoin out of Silk Road than he had deposited in the first instance. 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. As another example, a different Fraud Account made a single deposit and over 50 Bitcoin withdrawals before the account ceased its activity. ZHONG moved this Bitcoin out of Silk Road and, in a matter of days, consolidated them into two high-value amounts. Nearly five years after ZHONG’s fraud, in August 2017, solely by virtue of ZHONG’s possession of the 50,000 Bitcoin that he unlawfully obtained from Silk Road, ZHONG received a matching amount of a related cryptocurrency — 50,000 Bitcoin Cash (“BCH Crime Proceeds”) — on top of the 50,000 Bitcoin. In August 2017, in a hard fork coin split, Bitcoin split into two cryptocurrencies, traditional Bitcoin and Bitcoin Cash (“BCH”). When this split occurred, any Bitcoin address that had a Bitcoin balance (as ZHONG’s addresses did) now had the exact same balance on both the Bitcoin blockchain and on the Bitcoin Cash blockchain. As of August 2017, ZHONG thus possessed 50,000 BCH in addition to the 50,000 Bitcoin that ZHONG unlawfully obtained from Silk Road. ZHONG thereafter exchanged through an overseas cryptocurrency exchange all of the BCH Crime Proceeds for additional Bitcoin, amounting to approximately 3,500 Bitcoin of additional crime proceeds. Collectively, by the last quarter of 2017, ZHONG thus possessed approximately 53,500 Bitcoin of total crime proceeds (the “Crime Proceeds”). DOJ Press Release
On February 7, 2023, District Judge Lorna G. Schofield entered a final order of forfeiture for the following property seized from Zhong, vesting all right, title, and interest in the property in the United States:
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50,491.06251844 Bitcoin seized from ZHONG's home on November 9, 2021;
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825.38833159 Bitcoin provided by ZHONG on March 25, 2022; and
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35.4470080 Bitcoin provided by ZHONG on May 25, 2022.
This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.