Police body cam footage shows the Silk Road hacker opening up a laptop with thousands of Bitcoin (BTC) on it in front of federal investigators, not realizing he was incriminating himself.
James Zhong was charged by the US government last year for stealing more than 50,000 BTC from the illicit online marketplace Silk Road in 2012.
In 2019, After his house was broken into, Zhong called the police to inform them, despite having mountains of incriminating evidence lying around in his home. Zhong revealed over the phone that he was an investor in Bitcoin, putting himself on the radar of investigators.
At the same time, the IRS Criminal Investigation unit was painstakingly trying to solve the Silk Road hack of 2013, analyzing details of its on-chain paper trail.
Ultimately, an investigator from the blockchain analytics firm Chainalysis, who was hired by the government, noticed that an address associated with the Silk Road hacker accidentally performed a KYC (know-your-customer) routine with a crypto exchange, revealing Zhong’s name and home address months after his 911 call.
With help from Shaun MaGruder, CEO of a cyber intelligence company BlockTrace, the IRS created a plan to enter Zhong’s home and talk to him under the auspices of investigating the break-and-enter that he had reported earlier.
Once inside, Zhong made the grave mistake of telling investigators he was a “Bitcoin OG” and that he had 1,500 BTC sitting on one laptop alone, which he then proceeded to show investigators on camera.
Says MaGruder of BlockTrace,
“Lo and behold, he had $60 or $70 million worth of Bitcoins right there next to us…”
It was also revealed that Zhong was one of the earliest contributors to the development of Bitcoin, and routinely posted advice and suggestions on online forums for how to improve the Bitcoin protocol.
Investigators returned the following day, still under the pretext that they were helping him, but instead executed a search warrant.
Using a dog trained to find computer hardware, the agents found the wallets with the addresses to the 50,000 BTC, once worth over $3 billion, sitting in a safe buried in concrete underneath Zhong’s basement floor.
Zhong was sentenced to one year and one day in prison for his role in the Silk Road hacking incident.
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