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US man sentenced to 1-year, 1-day jail sentence after dark web marketplace scam

A resident of the US state of Georgia has been sentenced after pleading guilty to one count of wire fraud in relation to a series of frauds committed against the now-defunct dark web marketplace Silk Road.

user icon David Hollingworth
Mon, 17 Apr 2023
US man sentenced to 1-year, 1-day jail sentence after dark web marketplace
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James Zhong will spend a year and a day behind bars for a series of fraudulent transactions that netted him over US$3.4 billion in bitcoin.

At the same time as Zhong’s sentencing, the US government obtained the right to seize over 51,000 in Bitcoin.

The original fraud occurred in 2012 before Silk Road shut down in 2013. Zhong managed the feat by creating several fake accounts on the marketplace, then depositing between 200 and 2,000 BTC in each. He would then make multiple withdrawals from each account for the same amount of coins, in a matter of seconds — which tricked Silk Road into releasing more funds than originally deposited.

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“Back in 2012, James Zhong committed wire fraud by stealing 50,000 bitcoin from Silk Road, and for the next 10 years, he managed to conceal what he had done and how he obtained his fortune,” said US attorney Damian Williams in a statement. “Zhong used a decentralised bitcoin mixer, an overseas cryptocurrency exchange, and an impressive array of technological tools to frustrate tracing efforts.”

Once Zhong had completed the fraud, he withdrew his funds from Silk Road and consolidated them into two separate accounts. When bitcoin hard-forked into bitcoin and Bitcoin Cash in 2017, Zhong effectively doubled the amount of cryptocurrency in his accounts.

When law enforcement authorities executed a search warrant against Zhong’s premises in November 2021, they found a selection of gold and silver bars, physical bitcoins, and a mini-computer board hidden underneath blankets inside a popcorn tin.

All the ill-gotten proceeds were hidden inside a floor safe.

While the details of the investigation that led to Zhong’s arrest and subsequent sentencing have not been shared, attorney Williams thanked the Internal Revenue Service, Criminal Investigation’s Western Cyber Crimes Unit of the Los Angeles Field Office for their work on the case.

“Cyber criminals should heed this message: we will follow the money and hold you accountable, no matter how sophisticated your scheme and no matter how long it takes,” Williams said.

David Hollingworth

David Hollingworth

David Hollingworth has been writing about technology for over 20 years, and has worked for a range of print and online titles in his career. He is enjoying getting to grips with cyber security, especially when it lets him talk about Lego.

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