DoJ seized $3 Billion in cryptocurrency from the Silk Road marketplace

Department of Justice found and seized the cache of Bitcoin tokens from Silk Road worth $3.36 billion

The fraudster managed to make 50,000 from Silk Road and placed these funds in a popcorn tin

The massive seizure of over 50,000 Bitcoin got revealed by the Department of Justice. These funds were taken from James Zhong, who pled guilty to committing wire fraud on September 2012. He obtained over 50,000 Bitcoin from the Silk Road dark web marketplace. The hearing took place on November 4th when Zhong pled guilty.^[1] This is the second biggest seizure the department has ever made.

These funds of cryptocurrency were seized from the devices at the hacker's home back in 2021. At the time, the cache was worth close to four billion, but falling prices mean that those funds today are worth only one billion instead. The hacker was accused of defrauding Silk Road by creating a group of fake accounts. These were not intended to trade on Silk Road, according to the defendant. According to reports, he claims that these accounts were a part of the scheme to defraud the marketplace of Bitcoin.^[2]

For over a decade, the particular whereabouts of the massive chunk of the missing Bitcoins were a mystery. Investigators still are following the money. Silk Road was seized in 2013 when the underground website was described as a massive illegal drug and money-laundering marketplace.^[3] The creator Ross Ulbricht was convicted in 2015 for seven counts of enabling illegal drug sales using Bitcoin. He was sentenced to life in prison and already had appealed but was denied eventually.

Large sums transferred in seconds

One of the fraud accounts contained a large sum of Bitcoin, and withdrawals of the same amount from those accounts were made immediately after the deposits. These quick withdrawals tricked the Silk Road system into releasing more from the payment system than it should have been. These sums transferred to fraud accounts were raging from 200 to 2000 Bitcoins.^[4]

Within the same second, transfers made to fraud accounts got more funds, and the fraudster made significant sums of money, reports from the US agency state:

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

Zhong managed to trigger 140 transactions in quick succession to dupe Silk Road's payment systems, and 50,000 Bitcoin got released to the hacker-controlled accounts. Scammer managed to separate those sums to other addresses and collect the money.

Underground floor safe and the popcorn tin

Investigators from Internal Revenue Service criminal investigation division have opened the case and followed the money and online activities of the particular hacker. They raided Zhong's house back in November 2021 and found the 50,000 Bitcoin^[5] in an underground floor safe and on a single-board computer. The device was buried under blankets and other things and was a popcorn tin that was placed in a bathroom closet at his home.

James Zhong, 32, from Gainesville, Georgia, and Athens, Georgia, pled guilty to one count of wire fraud and faces a maximum of 20 years in prison when the sentencing ends, supposedly on February 2023. The defendant agreed to forfeit his stake in the real estate company and provide $661,900, among other items. Attorneys claim that he provided “virtually” all of the obtained Bitcoin cryptocurrency.