The US Department of Justice (DOJ) announced Monday that more than $3.36 billion worth of Bitcoin affiliated with the DarkNet marketplace Silk Road was seized by law enforcement last November. This seems to be the DOJ’s second-largest Bitcoin confiscation to date.
The announcement from the US Attorney’s Office comes after James Zhong, the man who stole the 50,676 Bitcoin in September 2012 (when Bitcoin was worth about $10), pled guilty to one count of wire fraud on November 4. This alleged crime could land Zhong a maximum of 20 years in prison.
This appears to be the second-largest Bitcoin seizure in the DOJ’s history following the seizure of 94,000 Bitcoin stolen in the 2016 Bitfinex hack. By the time those funds were reclaimed, their worth reached over $3.6 billion.
“For almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery,” US Attorney for the Southern District of New York Damian Williams claimed, adding that law enforcement located the funds using “cryptocurrency tracing” and “good old-fashioned police work.”
In September 2012, Zhong allegedly used a trading scheme to defraud Silk Road of its Bitcoin without listing or buying any items from its marketplace. At that time, Silk Road was frequently used for trading illegal drugs and other illicit goods before its founder, Ross Ulbricht, was sentenced to life in prison in 2015.
According to the DOJ, Zhong tricked Silk Road’s withdrawal processing system into releasing 50,000 coins by quickly triggering over 140 back-to-back transactions in his multiple anonymous accounts.
Five years later, Zhong also allegedly received an equal amount of Bitcoin Cash (BCH) just by holding his previously stolen Bitcoin. He later sold that BCH at an overseas crypto exchange for an additional 3,500 Bitcoin, the DOJ claims.
“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’,” said Tyler Hatcher, IRS-CI Special Agent in Charge.
Although Bitcoin addresses are technically pseudonymous, every transfer is recorded on its publicly available blockchain; therefore, blockchain intelligence agencies can trace the source of such coins using on-chain analysis techniques.
This February, the DOJ seized more than $3.6 billion in allegedly stolen cryptocurrency linked to the 2016 hack of Bitfinex. As part of the operation, authorities detained a New York couple on allegations they planned to launder digital goods. It marked the agency’s largest financial seizure ever.