Two years after James Zhong was apprehended for stealing 50,000 bitcoins (BTC) from the dark web marketplace Silk Road in 2012, stories of events that led to his arrest have emerged.
According to a CNBC report, Zhong was a computer expert who lived a luxurious life. He drove expensive cars, including a Tesla, partied a lot, stayed at fancy hotels, shopped at luxury stores, and lived in a modest off-campus bungalow with an unusually tight home surveillance system. He also bought a second home – a lake house with a dock in Gainesville, Georgia, stocked with boats, jet skis, a stripper pole, and lots of liquor.
The Break-in and Police Call
On March 13, 2019, Zhong called the Athens-Clarke County Police Department in a panic attack; someone had broken into his home and stolen 150 BTC worth hundreds of thousands of dollars.
Zhong’s complaint was the police department’s first crypto case, and as they were unfamiliar with the burgeoning sector, the case made no progress, and no suspect was arrested. As a result, Zhong recruited the services of local private investigator Robin Martinelli, who suspected through investigations that one of her client’s friends was responsible for the theft.
However, the then-28-year-old Silk Road scammer refused to believe Martinelli’s theories as he found it hard to accept that someone close to him could have betrayed him.
While Zhong tried to unravel his theft case, a group of agents from the Internal Revenue Service Criminal Investigation unit attempted to solve the Silk Road 2012 theft. They had waited for years as the culprit of the crime transferred funds from account to account, using crypto mixers to obscure the direction of the assets.
Unfortunately for Zhong, he made a mistake while transferring $800 to one of his accounts within that period. This was spotted by blockchain analytics company Chainalysis, which traced the funds to a crypto exchange with know-your-customer rules and discovered that the account was registered in Zhong’s name. This was six months after Zhong called the police to report his BTC theft.
The Arrest
For further investigation, the IRS asked the Athens-Clarke County Police Department for help. The agencies joined forces and dispatched three investigators who approached Zhong on the premise that they were investigating the crime he called about. However, they were checking him out for the theft of the Silk Road bitcoins.
Zhong opened up to them and gave them a tour of his apartment while they searched for hidden compartments. He eventually opened his laptop, where they saw $60 million to $70 million worth of BTC, which they considered enough evidence that he was behind the 2012 theft.
When asked, Zhong claimed he had gotten into BTC early and mined thousands of the crypto asset. In truth, he was found to be among a group of early coders who engaged with the Bitcoin technology.
After all was said and done, the investigators showed up at Zhong’s house days later with a team of officers who raided the apartment searching for evidence. With the help of dogs trained to sniff out electronics, the officers found a popcorn tin that hid a computer holding millions of dollars worth of BTC, cash, precious metals, and physical bitcoins.
Zhong was whisked away, convicted, and is currently serving a one-year sentence at the federal prison camp in Montgomery, Alabama. US authorities are selling the stolen assets as their owners have refused to claim them.
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