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Developer pleads guilty in $3.4B Silk Road Bitcoin theft

James Zhong scammed the dark web marketplace a decade ago

(Illustration by The Real Deal with Getty)
(Illustration by The Real Deal with Getty)

Property developer James Zhong pleaded guilty to wire fraud last week after he was caught with stolen cryptocurrency from the infamous dark web marketplace Silk Road.

Last November, federal investigators raided Zhong’s Georgia home and discovered more than 50,000 Bitcoin in an underground safe that he stole about a decade ago, Bloomberg reported.

Prosecutors in Manhattan recently revealed the seizure of the cryptocurrency, which was worth nearly $3.4 billion at the time of the raid, though the value has decreased substantially since.

The raid was part of an investigation into thousands of missing coins traceable to Ross Ulbricht, founder of Silk Road, the digital black market that was popular for hosting myriad illegal activities, including money laundering and drug trafficking.

It was the second largest crypto seizure in DOJ history.

Zhong was arrested last week and surrendered additional Bitcoin and agreed to help prosecutors access the remaining coins.

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In 2012, Zhong created multiple Silk Road accounts to shield his identity, then quickly triggered 140 transactions that fooled the platform into releasing Bitcoin into his accounts, court filings detailed. Zhong then transferred those funds into other accounts of his.

Zhong is not required to pay restitution, because the stolen coins stem from crimes committed by Ulbricht, according to Zhong’s plea agreement. Ulbricht is serving life in prison for various crimes and U.S. agents shut down the Silk Road marketplace in 2013.

After studying computer science at the University of Georgia, Zhong started RE&D Investments with Clayton Kemker in Memphis. Kemker told the publication that he provided sweat equity, while Zhong owned 80 percent of the development business.

When projects began stalling after prosecutors raided Zhong’s home, Kemker tried to buy Zhong out of the business, he said. But a deal was never reached, ultimately leading to an involuntary bankruptcy filing against the company two months ago.

Zhong was released on Friday after paying a $310,000 bond. As part of his plea agreement, he signed over to the government his 80 percent stake in the real estate company.

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— Holden Walter-Warner

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BitcoinCrimeCryptocurrency