The United States Department of Justice has just revealed a massive seizure of more than 50,000 bitcoins, the second largest seizure ever made by this department. The DoJ said the bitcoins were seized from James Zhong, who pleaded guilty to committing wire fraud in September 2012, when he illegally obtained more than 50,000 bitcoins from internet marketplace Silk Road. Mr. Zhong pleaded guilty on Friday, November 4.
The Department of Justice revealed that it seized 50,676.17851897 bitcoins from devices at Zhong’s home in November 2021, with the value of the stash then estimated at $3.36 billion. Today, thanks to the fall in the price, it is worth just under a billion dollars.
Nonetheless, the November 2021 seizure was the largest cryptocurrency seizure in DoJ history and remains today its second largest financial seizure, the DoJ mentions in a press release.
Scam Silk Road
During the court proceedings, Zhong was accused of defrauding Silk Road by creating around nine “fraudulent accounts”. Zhong allegedly did not use these “fraudulent accounts” to trade on Silk Road. Rather, they were only intended to be part of a scheme to scam bitcoin at Silk Road, the DoJ notes.
Zhong deposited a given sum of bitcoins into one of the “fraudulent accounts” and then immediately made several withdrawals of the same amount from that account. This rapid succession of withdrawals prompted Silk Road’s withdrawal processing system to release more funds from its payment system than it should have. The initial sums deposited into the fraudulent accounts were between 200 and 2,000 bitcoins.
“As an example, on September 19, 2012, Zhong deposited 500 bitcoins into a Silk Road wallet. Less than five seconds after making the initial deposit, Zhong executed five withdrawals of 500 bitcoins in quick succession – that’s i.e. within the same second – resulting in a net gain of 2,000 bitcoins,” the DOJ explains.
In total, Zhong triggered 140 transactions in quick succession to trick Silk Road’s payment systems into releasing the 50,000 bitcoins to accounts he controlled. Zhong would then transfer the bitcoins to different addresses.
When the US IRS Criminal Investigations Division, the Internal Revenue Service (IRS) raided Zhong’s home in November 2021, and found the 50,000 bitcoins in an underground safe and a hidden popcorn box. in a bathroom closet.
Mr Zhong, 32, pleaded guilty on Friday to one count of wire fraud and faces a maximum of 20 years in prison when sentenced on February 22, 2023.
Silk Road was an online “darknet” black market that operated from 2011 to 2013 and was used by drug traffickers and other criminals to distribute illicit goods and services to numerous buyers and to launder all funds therein transited. In 2015, Silk Road founder Ross Ulbricht was found guilty and sentenced to life in prison.
Source: “ZDNet.com”