The United States Department of Justice stated on Monday that it confiscated around $3.36 billion in misappropriated cryptocurrency during an unexpected 2021 investigation on James Zhong’s home.
Zhong pled guilty on Friday to a single count of wire fraud and faces a potential prison sentence of 20 years.
According to the DOJ, on Nov. 9, 2021, US agents confiscated about 50,676 Bitcoins, which was then valued at more than $3.36 billion, from Zhong during the investigation of his residence in Gainesville, Georgia. It is the DOJ’s second-largest fiscal confiscation to date, after its February announcement of $3.6 billion in illegally obtained virtual currency tied to the 2016 breach of the cryptocurrency exchange Bitfinex.
Authorities claim Zhong misappropriated Bitcoin from the unlawful Silk Road online market, a dark web site where narcotics and other illegal things were purchased and traded in exchange for cryptocurrencies. Silk Road was founded in 2011; however, it was shut down by the Federal Bureau of Investigation in 2013. Ross William Ulbricht, its creator, is currently serving a life term in prison.
The whereabouts of this enormous portion of stolen Bitcoin has swelled into a $3.3 billion conundrum for nearly 10 years, according to US Attorney Damian Williams in a press statement.
As stated by the Southern District of New York, Zhong used weaknesses in the market to carry out the breach.
Internal Revenue Service – Criminal Investigation Special Agent in Command Tyler Hatcher stated that Zhong utilized a refined strategy to acquire the cryptocurrency from Silk Road. As per the news release, Zhong opened nine bogus Silk Road profiles in September 2012, financing each with between 200 and 2,000 Bitcoin. He then executed over 140 transactions in quick succession, fooling the marketplace’s withdrawal-processing mechanism into releasing around 50,000 Bitcoin into his accounts. Zhong subsequently sent the Bitcoin to a number of wallet accounts that he controlled.
Police departments and blockchain analytic professionals were able to retrieve more than 50,000 Bitcoin from Zhong using smart contract analytics and good old-fashioned detective work. According to the press statement, they even discovered crypto stashed on a computer hidden in covers in a snack tin in a bathroom cabinet.
According to public documents, Zhong was the chairman and president of his own organization, JZ Capital LLC, which he established in Georgia in 2014. Per his LinkedIn profile, his job there was centered on investing and venture funding.
He was also a prominent early cryptocurrency investor with considerable knowledge of its internal dynamics, according to his biography, and he had software design skills in languages for computer programming.
Pictures of Zhong on boats, in front of jets, and at high-profile football matches can be found on his social media pages.
However, these kinds of cyberattacks did not stop with the closure of the Silk Road. Criminals continue to target cryptocurrency exchanges.
Binance, the world’s largest virtual currency market by trading volume, was hacked for $570 million in October 2022. According to the firm, hackers were capable of exploiting a cross-chain gateway, BSC Token Hub, due to a weakness in a smart contract. As an outcome, the hackers took BNB tokens, the system’s native currency.
A second hacker discovered flaws in the blockchain finance system Ronin Network in March 2022 and stole upwards of $600 million – the most significant hack to date. Private keys, which act as passwords to secure virtual currency assets in wallets, were hacked.
As per a Chainalysis assessment, until July 2022, $1.9 billion in Bitcoin had been lost in service breaches, compared to slightly under $1.2 billion at this exact period in 2021.
The Bottom Line
These security issues being faced by marketplaces are something that all cryptocurrency stakeholders should be aware of. Much of this is the reason that governments are looking to regulate the space, hopefully making it safer for investors and the organizations themselves.
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