The Silk Road Dark Web Thief James Zhong – Act 2: The Arrest

Meet James Zhong, a 22 year old who single handedly stole more than $3.4 ***BILLION*** Bitcoin from The Silk Road in 2012!

This is eCrimeBytes.com S 2 Ep 1-2: The Silk Road Dark Web Thief James Zhong – Act 2: The Arrest! Go back and watch act 1 if you have not already:

The Silk Road Dark Web Thief James Zhong – Act 1: Make Fat Stacks

Sources:

• https://www.justice.gov/usao-sdny/pr/us-attorney-announces-historic-336-billion-cryptocurrency-seizure-and-conviction
• https://www.justice.gov/usao-sdny/pr/silk-road-dark-web-fraud-defendant-sentenced-following-seizure-and-forfeiture-over-34
• https://www.courtlistener.com/docket/65692972/united-states-v-zhong/
• https://www.binance.com/en/feed/post/432912 (Photo)
• https://www.elitetrader.com/et/threads/the-u-s-cracked-a-3-4-billion-crypto-heistand-bitcoins-anonymity.373692/ (Photo)
• https://coinchapter.com/the-heist-of-the-decade-james-zhongs-silk-road-scam/ (Photo)
• https://cointelegraph.com/magazine/3-4-billion-bitcoin-popcorn-tin-silk-road-hacker/ (Photo)
• https://coinsalad.com/silk-road-bitcoin-billionaire-james-zhong-lost-it-all-new-details-reveal-more-about-him-and-what-happened/ (Photo)
• https://www.dailymail.co.uk/news/article-11985885/Bitcoin-scammer-admits-using-money-stolen-gains-impress-women-hes-sentenced-year.html (Photo)

Chapters:

0:00 Intro
1:21 Big Day In Court
3:04 Sentencing Predictions
5:08 Statute Of Limitations
6:53 Zhong’s Plea
7:11 The Bug

Transcript:

00:00:10:00 – 00:00:34:27
Keith
Hey, welcome back to eCrimeBytes. We’re talking about James Zhong again, the thief that stole 3.4 billion with a B from Silk Road. In our last act, we gave you the background of Silk Road. We gave you the background of James Zhong. And we talked about how James Zhong found a bug in the Silk Road where he could put money into it via Bitcoin.

00:00:35:00 – 00:00:55:26
Keith
Let’s say it’s five Bitcoin. And then he could say, Hey, I want that five bitcoin back, as he well should. But then he could say, I want that five bitcoin back and he get another five bitcoin back and he would say it again and get another five bitcoin back. He did this enough where he eventually ended up with about $3.4 billion in his possession.

00:00:55:28 – 00:01:21:09
Keith
So at this point we left you where they just perform the search warrant on his house. They found fat stacks in a floor safe. They found metal bars worth money. They found over 50,000 Bitcoin, which is a lot of money in 2022 and 2023. And now we are on November 4th of 2022. The arrest. So this I thought was interesting.

00:01:21:10 – 00:01:49:27
Keith
This is where the court documents really started picking up in this case. It all kind of happened on the same day chronologically in the court documents where he was arrested. He also agreed to a plea and he waived his indictment and he was charged with one count of wire fraud. And he had a bond set of $310,000. It’s a personal recognize bond.

00:01:49:29 – 00:02:15:27
Keith
And he was able to pay it. So immediately I went, oh, my God, this guy got arrested for stealing all this money. How did he get the $300,000 to get out of jail? And if you haven’t listened to our Act one, it’s I told you that he was an early adopter of Bitcoin, so he was running mining equipment with high end computer systems back when Bitcoin was easy to mine and it was cheap.

00:02:15:29 – 00:02:47:28
Keith
And then he hung on to it and when he hung on to it, it made a lot of money. And from what I read, I bet you James Zhong could have not done any of this hack into the Silk Road and still be pretty darn wealthy just from his bitcoin, his legitimate bitcoin activity. And this was a year 2009 was the era where he started his most of his mining and made his money.

00:02:47:28 – 00:03:04:10
Seth
So a couple of days after the arrest, a couple of attorneys for Zhong are admitted. So the first begs the question, why do they appear after a plea was reached? And moreover, we can’t imagine that the attorneys were happy not being involved in their client’s pleading out.

00:03:04:12 – 00:03:22:12
Seth
But there was a plea hearing a week later. So at this point, Mr. Zhong is now 32 of Gainesville, Georgia, and Athens, Georgia, pled guilty to one single count of wire fraud, which carries a maximum sentence of 20 years in prison. So without looking ahead, Jones any predictions on his sentencing at this point?

00:03:22:15 – 00:03:25:26
Keith
I can’t guess because I actually know I researched it so I know what it is.

00:03:25:26 – 00:03:44:07
Seth
So I would have guessed that given the amount of money at issue, there would have been much more close to the 20 year. I mean, we’ve seen other cases in tax fraud where people I think got like ten or 12 years because there was tens of millions of dollars involved. So when you’re in the billions of dollars of range, you would think that that would weigh heavily on a and on a longer sentence.

00:03:44:07 – 00:03:47:14
Seth
Right. So let’s pause on that for now.

00:03:47:16 – 00:04:08:04
Keith
I when I initially looked at it, I thought it was going to be light because the dude was so he worked with authorities almost from step one. Once they got in contact with him. I mean, he was giving them Bitcoin that he voluntarily surrendered, that he didn’t steal. So when I read that, I was like, It sounds like he’s cooperating.

00:04:08:04 – 00:04:26:21
Keith
So it’s I thought initially it’s going to be light, but I don’t want to give a prediction that actually I actually know what it is. Now, I do want to point out one thing here that we glossed over very quickly, but it’s important. Seth says Zhong is now 32 years old. He was 22 when I talked to him before.

00:04:26:23 – 00:04:50:06
Keith
This guy had this Bitcoin for ten years. He got away with this crime for ten years. And just from a criminal sense, you go, Wow, that’s a long time. But think about it from a financial aspect where he held onto Bitcoin that he stole and you’re going to find out he didn’t spend a lot of it. It appreciated over ten years.

00:04:50:08 – 00:05:04:20
Keith
That’s why we’re able to get from relatively reasonable numbers when he stole it to $3.4 billion in 2022 and 2023 because Bitcoin appreciated so much over that time.

00:05:04:23 – 00:05:07:09
Seth
Yeah, for sure.

00:05:07:11 – 00:05:34:16
Keith
One of the things I thought was interesting and I read a lot it a lot of actual live testimony for this case. There was a point where it sounds like there was a statute of limitations issue that came up and Zhong just voluntarily waived his right to argue the statute of limitations running out in his case, which I thought was an interesting move.

00:05:34:16 – 00:05:56:18
Keith
I don’t know if he did it prior to getting his attorneys on the case or after they joined the case. But it seemed pretty interesting. They the judge actually questions them and says, you know, what do you really do you agree? You know, do you are you going to waive the rights to argue that the charge against you is time barred, meaning statute of limitations?

00:05:56:18 – 00:06:02:25
Keith
And they said, yep, yep, we’re going to waive our rights to this, which I just thought was interesting, was already like.

00:06:02:28 – 00:06:24:25
Seth
Well, legally, I don’t even know. I mean, I guess you can I would have guessed that you can’t just a statute, you can waive certain rights, but I didn’t realize you can waive a statute of limitations. That’s like a built in protection that just kind of at a higher level says you can or cannot prosecute this case based upon a statute of limitations.

00:06:24:25 – 00:06:37:28
Seth
Regardless of whether the defendant wants to waive that right, they can weigh the right to counsel, they can waive the right to remain silent. But that that is very, very interesting to me. And I kind of need to do a deeper dive on that.

00:06:38:00 – 00:06:52:17
Keith
Yeah, I was really taken aback by that. And I just want to mention it because I hadn’t seen it on other cases. And when I read it, I was like, Why did he not use this as like his first argument of Leave me alone? It’s been more than the statute of limitations. But anyway, let’s just get to the plea.

00:06:52:19 – 00:07:27:04
Keith
So I wanted to highlight a couple of things that he said in his plea. There’s a lot of stuff that he says upfront that’s just background, like, Hey, I was on the Silk Road September of 2012 and I’m on there to buy personal use drugs. You’re going to find out it’s probably cocaine because you’re gonna find out he likes cocaine and he decides at some point that he has money inside the Silk Road and he wants the rest of it back because he’s not going to buy more cocaine or something.

00:07:27:07 – 00:07:50:05
Keith
So he hit the withdrawal button, right? Gets his money back. But something happened where he actually double clicked it. I imagine maybe he clicked at the first time and maybe it chugged and didn’t do anything. And he’s like, Oh, I didn’t work. And clicked it again. And when the motherfucker did this, it paid him twice and he said, Holy shit.

00:07:50:07 – 00:08:11:22
Seth
So let’s just imagine going to an ATM and let’s say you have $1,000 in your account and you withdraw $200 and it gives you 200 dollars. Then you look at your account balance and it still says $1,000. So then you said, Huh, that’s not right. Let me go do that again and you do it again. And now you should be down $400.

00:08:11:24 – 00:08:19:15
Seth
This machine spits out another 200 dollars. Now you have $400 in your hand and you still have $1,000. That’s kind of what happened here.

00:08:19:17 – 00:08:39:12
Keith
Yep. So when he saw that, when holy shit look at that, first thing he did, he went out, he created several user accounts on the Silk Road because you don’t want to do it all under one account, right? You got to spread your fraud out across the accounts and then he conducted multiple transactions because the motherfucker has a bunch of money.

00:08:39:12 – 00:09:03:03
Keith
Remember, he just mined a ton of Bitcoin in 2009. So he has all the seed bitcoin that he needs to put into the Silk Road to then withdraw the same money and get, you know, five times the amount that he originally put in. So at the end of the day, he tricked the Silk Road into giving him about 50,000 coins.

00:09:03:03 – 00:09:24:27
Keith
And even if it was a dollar a coin, Seth Even if it was a dollar a coin, that’s a lot of goddamn money. But it was more than a dollar coin back then. So this guy had a lot of money. And back then he, at least in his words, valued the 50,000 coins to be about $600,000. And think about that for a minute.

00:09:24:27 – 00:09:36:28
Keith
If he was $600,000 in 2012 and he’s $3.4 billion in 2022, the appreciation of Bitcoin was immense.

00:09:37:00 – 00:09:38:14
Seth
Yes. Yes.

00:09:38:14 – 00:09:57:09
Seth
So let’s talk about the plea agreement that Mr. Zhong ended up getting involved in. So he says from his court documents that his conduct took only a few hours spread over several days and he could stop his conduct voluntarily, even though he believed that he also could have continued to withdraw more coins undetected. But he said, this is very key.

00:09:57:13 – 00:10:18:21
Seth
Once I stopped my illegal conduct, I never help or encouraged anyone else to do what I did. I knew that my conduct was wrong and I’m truly remorseful for what I did. I therefore voluntarily provided the government with the necessary information to access my cryptocurrency accounts. Even before I had any plea agreement with the government. I am truly sorry for my behavior.

00:10:18:21 – 00:10:35:29
Seth
So my my interpretation of this is, yeah, I guess I can give up the billions of dollars that I have since I’m already rich and I’d rather not do time at least extensively so I can, you know, enjoy the fact that I am rich. That’s my assumption. But Jones what do you think?

00:10:36:01 – 00:10:57:01
Keith
I there’s a couple of things in here that I thought were important. One was he said I didn’t help anybody else. So immediately there I thought the government’s probably going to go lenient, going to be lenient on him because he didn’t teach anybody else to do it. And the fact that he started giving Bitcoin back before he had his plea agreement, I went, they’re going to be lenient on him again as to why he gave the money back.

00:10:57:01 – 00:11:07:23
Keith
I don’t know if it was because he was caught, because he held on to it for ten years. You know, I mean, if you wanted to give it back five years ago, he could have. But didn’t. Yeah.

00:11:07:23 – 00:11:31:12
Seth
By that time, no one was asking. And that’s the thing with crypto, right? It’s not even like he’s physically holding stolen cash. And what else? See, I don’t think I mean, and keep me honest on this because I’m not sure the court documents indicate it one way or the other, But as opposed to our very first case where the guys were buying, you know, jet skis and monster trucks, it sounds like he was just living a pretty monastic life and just kind of chuckling at his good fortune.

00:11:31:14 – 00:11:52:03
Keith
He spent some coin. We’re going to talk about that in a minute. Okay. Yeah, he spent some coin. I don’t it’s not clear if it’s I think it’s partially his stolen funds, but the lion’s share, I think it’s like 80 plus percent of what he stole. He actually didn’t touch, but he did touch. It was so immense that even when he touched a little bit of it, it was a lot of money.

00:11:52:05 – 00:11:53:07
Seth
Fair enough. Fair enough.

00:11:53:07 – 00:12:20:00
Seth
Okay, so now we’re in March of 2023, and there’s a forfeiture notice from the US District Court. This is up in New York, actually, essentially requiring that based upon the case of US versus James Zhong, James Zhong has to forfeit about, let’s see there’s 11 Bitcoin another $662,000 in currency as Casascius coin, which is physical bitcoin

00:12:20:00 – 00:12:45:07
Seth
Various metal items consisting of four one ounce silver colored bars, three one ounce colored gold colored bars and four 10 ounce silver colored bars. So notice you’re not actually naming the type of metal. The metal could have been gold or silver or platinum or some other precious metal. I’m assuming it was. And I’m sure that that was worth quite a bit of money.

00:12:45:09 – 00:13:11:07
Seth
So the forfeiture notice also mentioned other stashes of Bitcoin 23 bitcoin here, 115 Bitcoin there, another four and a half bitcoin there. And then more importantly, the defendants 80% interest in this company called R E and D Investments. So he had to forfeit basically all of his, I guess gotten or ill gotten gains or wealth from the Bitcoin.

00:13:11:07 – 00:13:54:14
Keith
So about a week later, after the government posted that forfeiture that Seth just went through, of all those Bitcoin and bars and investments and so forth, the final order of forfeiture went through and this is where we get our final end of the day number. The forfeiture was approximately $3.4 billion. So if you sit there for a second and think back on how easy this hack was of just putting some money and clicking a mouse button twice or more and getting extra money back, he made $3.4 billion off of that bug, which just blows my mind.

00:13:54:15 – 00:13:55:25
Keith
Blows my mind.

00:13:55:27 – 00:13:57:28
Seth
Very efficient though.

00:13:58:00 – 00:14:21:14
Keith
Yeah. So hey, we finished act two. I hope you enjoyed it. That was the search warrant through the plea agreement portion of the act. And now we’re going to get into sentencing because that’s going to be act three and sentencing by itself, we learn a lot more about James Zhong and we learn we learn what his sentencing is.

00:14:21:14 – 00:14:31:02
Keith
And it might be surprising to some of you. So I hope to see you back in a day or two and we will have act three out for you. Thanks. Bye.

#ecrimebytes #cybersecurity #electronic #computer #truecrime #podcast #security #hacker #humor #funny #comedy #zhong #silkroad #bitcoin #theft #bug #darkweb