The US secures a conviction in a historic crypto dark web fraud case

A man who once owned over $3 billion worth of bitcoin

James Zhong’s actions date back to September 2012, when he illegally obtained over 50,000 bitcoins from the now infamous dark website, which accepted the cryptocurrency in exchange for drugs and other illegal items.

The announcement is the latest indication that law enforcement is becoming more sophisticated in fighting illegal activity in a crypto industry that has grown significantly since the Silk Road marketplace shut down in 2013.

Its founder, Ross Ulbricht, who called himself “Dread Pirate Roberts,” was sentenced to life in prison in 2015, and the court declared all bitcoins that passed through the Silk Road payment system laundered.

“For nearly a decade, the whereabouts of this massive chunk of missing bitcoin had become a $3.3 billion+ mystery,” said US Attorney for the Southern District of New York, Damian Williams.

“Thanks to state-of-the-art cryptocurrency tracking and good old-fashioned policing, law enforcement found and recovered this impressive cache of crime proceeds.”

Bitcoin received by Zhong, 32, in 2012 came before the crypto industry experienced a significant bull run. Although the price of Zhong’s illicit holdings had risen to around $3.3 billion by the end of November 2021 and is worth over $1 billion by today’s prices, despite this year’s crypto market collapse.

According to the Justice Department, Zhong implemented a multi-stage scheme to defraud Silk Road, including setting up approximately nine Silk Road accounts to disguise his identity and transferring the bitcoin to separate addresses under his control to avoid detection and concealing the source of funds.

According to a search warrant, IRS officers recovered the bitcoin from Zhong’s home in Gainesville, Georgia, some of which was kept on a simple computer hidden in a popcorn can and in a safe under the floorboards.

In addition to the stolen bitcoins, law enforcement recovered over $660,000 in cash.

Zhong pleaded guilty before US District Judge Paul Gardephe on Friday, November 4 and is expected to be sentenced in February next year.

Michael Bachner, an attorney for Zhong, pointed out that he was convicted for transactions that “occurred over 10 years ago when [Zhong] was just 22 years old.”

“Mr. Zhong returned virtually all of the bitcoins he had illegally acquired,” Bachner added.

“Ironically, given the rise in bitcoin value over the past decade, the value of the bitcoin he gave back exponentially exceeded the value of the bitcoin he took.”

https://www.ft.com/content/fb95f044-a340-4901-9553-a7eaa58014e2 The US secures a conviction in a historic crypto dark web fraud case

Adam Bradshaw

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