U.S. Seizes $3.3 Billion In Bitcoin Linked To Dark Web Fraud

According to a press release, the U.S. Department of Justice (DoJ) seized over $3.3 billion or 50,000 Bitcoin (BTC) tied to the infamous digital Silk Road. This capture is one of the largest in history for the DoJ, the Southern District of New York, and the Internal Revenue Service (IRS) criminal division. 

The seized Bitcoin was tied to the dark web marketplace “Silk Road,” as mentioned, and to Jame Zhong. This individual pleaded guilty to wire fraud on November 4, 2022, for purchasing the 50,000 BTC from this website. 

U.S. law enforcement agencies confiscated the digital currency as part of a search warrant on Zhong’s property in Gainesville, Georgia. In addition to confiscating Bitcoin, the government seized 80% of Zhong’s investments, $661,000 in cash, and precious metals from the property. 

U.S. Attorney Williams claims Zhong stole the 50,000 Bitcoin over a decade ago. The government has been looking for the loot for years and celebrates that their investigation led them to resolve the $3.3 billion mystery. 

The result of this decade-long investigation shows that Bitcoin and cryptocurrencies are not valuable tools for criminals as fiat currency. In the blockchain, there is always a potential lead to capture bad actors. Williams claims that law enforcement agencies used advanced crypto-tracing technology:

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.

Bitcoin Out Of The Silk Road

The darknet marketplace Silk Road operated from 2011 until 2013; according to the investigation, the platform enabled drug deals and illicit goods and services trade. The founder of the website, Ross Ulbricht, currently serves a life sentence for his participation in creating the website. 

Zhong was accused of running a scheme to defraud people using Silk Road. The individual concealed his identity and tricked the platform into exploiting a vulnerability in its design by triggering 140 transactions in “rapid succession.”

Zhong used 200 to 2,000 Bitcoin to fund his Silk Road accounts and then proceeded to execute these fast withdrawals, which allowed him to exploit the vulnerability. This amount doubled in 2017, according to the press release, 2017 during the event called “Block Wars.”

At that time, specific individuals forked the Bitcoin network and sent all BTC holders an airdrop with Bitcoin Cash (BCH), the newly created token for this blockchain. Zhong is currently in custody awaiting sentencing by a U.S. judge, which will occur on February 23, 2023. 

This scheme allowed him to steal 50,000 Bitcoin, which Zhong transferred to addresses under his control. The law enforcement agencies claimed that the individual went to additional efforts to conceal the ownership of these BTCs.

Special Agent in Charge for the IRS Criminal Investigation division 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.