Nov 7, 2022 - Technology

Feds seize $3.36 billion in crypto in dark web fraud case

Illustration of a cane pulling a pixelated coin off stage.

Illustration: Shoshana Gordon/Axios

Federal authorities seized more than $3.36 billion worth of Bitcoin as part of an investigation into fraud involving the Silk Road dark web marketplace, the Department of Justice announced Monday.

Why it matters: The announcement signals the feds' growing capability for — and interest in — recovering cryptocurrency payments tied to cybercrime.

Driving the news: DOJ said it seized approximately 50,676 Bitcoin last November, which was then valued at more than $3.36 billion. At the time, it was the largest cryptocurrency seizure in DOJ history, but the amount is now worth roughly $1.05 billion.

  • The department also announced that James Zhong pled guilty earlier this year to committing wire fraud in September 2012 after unlawfully accessing 50,000 Bitcoin from Silk Road.

Flashback: If this number sounds familiar, it's the U.S. governments second multi-billion dollar recovery this year, following its find of ill-gotten gains from a 2016 hack on the exchange Bitfinex.

Catch up quick: Silk Road was an illegal dark web marketplace that operated between 2011 and 2013 and ultimately collapsed after its operator, Ross Ulbricht, was arrested.

Details: Zhong was able to manipulate Silk Road's payment system by triggering more than 140 transactions "in rapid succession" and successfully tricking it into releasing about 50,000 Bitcoin, according to an affidavit filed Monday.

  • The IRS had been investigating the location of approximately 53,500 Bitcoin since 2019. The Bitcoin was still owed to the federal government as part of Ulbricht's conviction.
  • IRS agents discovered the Bitcoin in an underground floor safe and on a "single-board computer that was submerged under blankets in a popcorn tin stored in a bathroom closet" at Zhong's home in Gainesville, Georgia.
  • After the original seizure, Zhong has willingly forfeited roughly 1,000 additional Bitcoin since March.

What's next: Zhong has pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years. He is scheduled to be sentenced on Feb. 22.

Editor's note: This story's headline has been corrected to say that $3.36B in Bitcoin was seized, not $3.6B as the original headline read.

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