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Record Crypto Seizure Comes from Investigation Into Nefarious Silk Road

The long and winding Silk Road saga has reached another milestone as the U.S. government announced the arrest and conviction of James Zhong, who had illegally obtained more than 50,000 Bitcoin from the dark web.

According to the U.S. Attorney’s Office for the Southern District of New York, the historic seizure was executed in November of 2021, and it accounted for $3.36 billion worth of digital assets.  

U.S. Attorney Damian Williams said Zhong was charged with committing wire fraud more than 10 years ago and the missing Bitcoin represented a “$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,” Williams said. “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.”

The Silk Road black market was an infamous den of criminal activity that featured avenues for money laundering, illicit drug trafficking and other surreptitious dealings. Eventually, the FBI shut down the digital black market in 2013, and its founder, Ross William Ulbricht, is serving a life sentence as a result of his efforts organizing those activities.

“Through a combination of data anonymization technology and a feedback trading system, Silk Road created a haven for drug traders. The site was accessible only through a network known as Tor, which exists mainly to anonymize user data and activities online,” according to Investopedia. “Tor obfuscates users’ addresses so they appear hidden to unwanted parties looking to surveil the user’s transactions and activities.”

From Twitter

Raphael Schoen  @raphschoen

"This week we have so far:

  • SEC won against a crypto token, which could mean that essentially everything crypto in the US is a security (incl. ETH)
  • CZ vs SBF, bank run on FTX, closed withdrawals at FTX
  • US Feds confiscate 50k Silk Road BTC

It’s Tuesday by the way."

The confiscation represents the largest cryptocurrency seizure in the U.S. Department of Justice’s history, and it represents the second-largest financial seizure it has ever made, according to the U.S. attorney’s office.

In order to pull off the heist, Zhong created a series of fraudulent accounts on Silk Road with the hopes of hiding his identity. He then triggered a rapid succession of transactions in order to “trick” the Silk Road withdrawal system into depositing the digital assets inro his control. The coins were lifted and anonymously transferred to his accounts “in a manner designed to prevent detection, conceal his identity and ownership, and obfuscate the Bitcoin’s source,” reads the announcement.

Zhong did not list any services for sale, nor did he purchase any services on Silk Road, it adds. “Mr. Zhong executed a sophisticated scheme designed to steal bitcoin from the notorious Silk Road Marketplace,” said IRS-CI Special Agent in Charge Tyler Hatcher. “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.’” 

Zhong pleaded guilty to the single wire fraud charge, and he faces up to 20 years’ prison time.

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