Feds Seize Record $3.3B in Crypto in Silk Road Fraud Case

Federal authorities say they have seized a “historic” $3.36 billion in bitcoin stolen by a convicted fraudster from the Silk Road dark web marketplace.

According to a Monday (Nov. 7) news release from the U.S. Attorney’s office, 32-year-old Georgia resident James Zhong has pleaded guilty to wire fraud for illegally obtaining more than 50,000 bitcoin from Silk Road in 2012.

Last year, the release said, law enforcement searched Zhong’s home and seized approximately 50,676 in bitcoin, then valued at more than $3.3 billion. At the time it was the largest crypto seizure in Justice Department history and is still the department’s second-largest financial seizure ever.

“For almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery,” U.S. Attorney Damian Williams said.

“Thanks to state-of-the-art cryptocurrency tracing and good old-fashioned police work, law enforcement located and recovered this impressive cache of crime proceeds.”

Zhong is scheduled to be sentenced in February of next year and faces up to 20 years in prison, the release said.

Learn more: Crypto-Related Crime Less Common, Easier to Track, Says Chainalysis

Crypto-related crime has become less common and easier to track in the years since Zhong carried out his heist.

That’s according to Kim Grauer, head of research at blockchain data firm Chainalysis, who spoke to PYMNTS on the topic in August. The year began with 300 million crypto users, very few of whom are engaged in criminal behavior.

“We can quantify it,” she said. “We’re able to say that less than 1% of all transactions that we’ve identified at Chainalysis are associated with criminal activities.”

That’s compared to the 3% to 5% of U.S. dollars used for criminal purposes worldwide. But even that is a flawed number, she said, contending that it’s much easier to see what’s happening on public blockchains, which record every transaction immutably and instantaneously.

“The transparency of this data set actually allows us to see how much crime is happening in real time,” Grauer said. “Every transaction that ever occurs on the blockchain is available forever. It’s always going to be there. And that is devastating for criminals who don’t want the evidence of their crime to be preserved for all time.”