Jimmy Zhong, who stole – and lost – more than $3 billion

Jimmy Zhong’s Arrest
Source: Bitcoin News

How Jimmy Zhong’s Arrest Unfolded: The University of Georgia is located in Athens, Georgia, and the local police are accustomed to dealing with crimes typical of college towns.

However, the Athens-Clarke County Police Department had never dealt with a 911 call quite like the one that was received on the evening of March 13, 2019.

Jimmy Zhong, a 28-year-old local boy and Georgia alum, answered the phone. Zhong in addition to being an expert in computers, also owned an incredibly powerful digital home security system.

He was now calling to report a theft: he claimed that hundreds of thousands of dollars worth of cryptocurrency had been taken from his house. Zhong was upset as he considered all that money that had been lost.

According to a recording that CNBC was able to get, Zhong said to the dispatcher, “I’m having a panic attack.”

Zhong started trying to explain the situation after declining the dispatcher’s offer of an ambulance. “I invest in bitcoins.”

It’s similar to something you do online,” he stated.

What followed would solve one of the largest crimes of the crypto age and terminate a manhunt that had lasted over ten years. Additionally, it would result in the biggest seizure of Bitcoin from a single person in the Department of Justice’s history.

Zhong’s emergency call that winter’s evening set off a lengthy digital trail that traced the history of Bitcoin back to its inception and exposed a sinister side to the world of hackers and programmers who create cryptocurrency. In this reality, good guys and bad guys might interchange roles or even be the same person.

Nothing would proceed the way Zhong desired.

There was no suspect in the theft from Zhong’s home as a result of the 911 call. Despite being inexperienced with the murky underworld and handling one of their first crypto cases, the Athens police were unable to advance the investigation.

Zhong then went to Martinelli Investigations, a small private investigation firm owned and run by Robin Martinelli in Loganville, Georgia, which is not far away.

Martinelli, a PI and former sheriff’s deputy, was by no means an authority on crypto.

Martinelli had recently had surgery to amputate one leg, therefore she used a prosthetic to carry out her surveillance activities.

She was yet driven to resolve Zhong’s issue.

You have to go out there and kick ass when you wake up and you don’t have two feet on the ground but you still have to run a company, Martinelli said in a CNBC interview for the upcoming documentary “Crypto 911: Exposing a Bitcoin Billionaire.”

She started by looking at Zhong’s extensive collection of home surveillance footage. Martinelli noticed a thin man figure while watching the CCTV tape from the night of the incident.

Jimmy Zhong’s Arrest
Surveillance footage CNBC obtained captures someone breaking into Zhong’s home in March 2019. Source: Athens-Clarke County Police

Martinelli remarked, “We could see that they were wearing a gray hood, but they also had almost like a black ski mask on.”

Martinelli assumed the suspect was a friend of Zhong’s or someone who had heard Zhong brag about his Bitcoin stash because he seemed to know his way around the residence. Martinelli was able to ascertain the suspect’s height and even the size of his hands from the video.

She claimed that in order to start her investigation, she put Zhong’s pals under surveillance and tracked them to bars on Broad Street and College Avenue in the downtown area as well as their houses. She ran background checks, tracked down people on social media, and installed trackers on cars.

Martinelli had a bad impression of Zhong’s buddies as she saw them come and go. “Very, very casual, plastic, not really caring, maybe using Jimmy a little bit,” was how she put them.

Martinelli claimed that Zhong didn’t seem to agree with her beliefs, particularly when they started to center on his social group. After some time, Martinelli narrowed her suspicions to one person in particular, whom she thought had taken 150 bitcoins from Jimmy. That quantity of digital currency was valued at about $600,000 at the time.

She stated Zhong didn’t want to hear it.

Martinelli recalled that “he would get upset when I would kind of mention somebody would have had to have known where this cash was.” She also comprehended Zhong’s hurt at the possibility that a close friend or relative had betrayed him.

She remarked, “Jimmy wanted to be loved.” Jimmy desired companionship.

Martinelli was growing fond of her client, whom she thought was a strange man looking for friends, even as she lost interest in the friend group.

She said, “Jimmy was a good guy.”

Many others in the Athens area shared his sentiments.

Zhong was well-known in the area for flinging large sums of money around before to the robbery.

Zhong bought designer labels including Gucci, Jimmy Choo, and Louis Vuitton. He was a driver, and he had a Tesla. He purchased a second residence in Gainesville, Georgia, a short drive from Athens, a lake property with a dock.

Zhong had no obvious source of money, yet he was content with his existence. He was unemployed, as far as anyone knew. He boasted to his pals that he was an early adopter of Bitcoin, having mined hundreds of coins in the platform’s early stages. Zhong disclosed to individuals that he had experimented with cryptocurrency as early as 2009 when it was created by an unnamed developer and an enigmatic figure known only as Satoshi Nakamoto.

Zhong was making tons of money, whatever he was doing. And he was prepared to indulge.

Masic claimed that in addition to purchasing all of the tickets, Zhong also hired a private jet for the interstate journey. Additionally, he offered each friend up to $10,000 for a Rodeo Drive shopping trip in Beverly Hills. They used money to purchase jewelry, clothing, and accessories to wear in the city.

I had never taken a private flight before, and I had never stayed in an Airbnb this nice. I got to experience a lot of stuff that I wouldn’t ordinarily get to, so that was good.

Zhong had no idea that a tiny team of IRS Criminal Investigation section agents, under the direction of local authorities, were laboriously working to investigate a long-standing crime while he was supporting his team in Los Angeles.

Based on court documents CNBC reviewed, the investigators were drawn to a 2012 hack in which someone had taken 50,000 bitcoins from a dark web site called Silk Road. One of the first cryptocurrency markets, the website allowed anonymous buyers and sellers to trade all kinds of illegal goods.

According to court filings, the value of the bitcoin that the Silk Road hacker stole had increased over time to exceed $3 billion. The blockchain, a public record of all transactions, allows investigators to follow the money’s location. However, they were unable to identify the new fund owner. For years, they observed and bided their time while the cybercriminal moved money between accounts, withdrew part of it, and routed some of it through cryptocurrency “mixers” that masked up the money’s origin.

Ultimately, the hacker made a small error, according to Chainalysis, a blockchain analytics firm tracking the virtual wallets holding the assets taken from the Silk Road. He moved about $800 to a cryptocurrency exchange that complied with banking regulations, such as “know your customer” procedures that demand account holders’ true identities and addresses.

Zhong was the one who registered the account. September 2019 saw the transaction, which happened six months after Zhong called the local police on 911.

That was insufficient to establish Zhong’s identity as the hacker. They needed to be certain.

According to officials at both agencies, the IRS then called the Athens-Clarke County Police Department and requested assistance. The police inquiry into Zhong’s own criminal report had been stalled at the time.

Lt. Jody Thompson, head of the region’s property and financial crimes unit, told CNBC, I received a call from an IRS agent. And he asked if he might stop by and talk to you about Jimmy. And I said, Yes, I do recall this instance.

Following that, Thompson teamed up with IRS-CI special agent Trevor McAleenan and BlockTrace CEO Shaun MaGruder to form the cyber intelligence group. MaGruder’s organization was selected by the IRS to serve as an embedded contractor because of its proficiency in deciphering intricate blockchain transactions.

The three detectives claimed that they had come up with a plan together. They would approach Zhong under the pretense that they were looking into the incident he had reported, in which a thief had made off with hundreds of thousands of dollars worth of his bitcoin.

They were actually looking into Zhong for a crime they thought he had committed. A crime with billions of dollars in proceeds today.

According to body camera footage obtained exclusively by CNBC, Zhong opened the door of his lake house in Gainesville enthusiastically when the three guys knocked on it. He thought the presence of the police officer and the two experts would aid in resolving his crypto cold case.

The officers can be seen gushing with appreciation in the footage. They described his entrance as “beautiful.” They praised Chad, his dog, and termed his speakers “crazy.” They requested to take a house tour. The men may be seen on body camera footage tapping on stone flooring, perusing closets, and inspecting wood paneling. They were looking for hidden chambers, but Zhong was unaware of this.

The body camera footage also reveals that they carefully examined Zhong’s security system and that they asked him to describe all of its functions. Zhong is also shown displaying to the group a metal case that he claims was once used to conceal $1 million in cash for the purpose of impressing a woman.

Lt. Thompson enquired, “Did it work?”

“Nope,” responded Zhong.

“It never does,” Thompson retorted.

The police discovered that Zhong had a flamethrower on the property. They also noticed his AR-15 rifle hanging from the wall.

Zhong’s level of intelligence, according to MaGruder, was obvious.

MaGruder observed I’ve never seen somebody navigate a keyboard like he was doing. He knew all the hotkeys, so he didn’t need to use a mouse.

The cops played along with the ploy and demanded Zhong open his laptop and explain how he got the Bitcoin in the first place. Zhong asked the investigators to turn aside as he typed his password while sitting on the couch next to them.

Law enforcement could see his Bitcoin wallet when he unlocked the laptop.

“Lo and behold, he had $60 or $70 million worth of bitcoins right there next to us,” MaGruder remarked in an interview with CNBC.

The investigators were able to be persuaded of their accuracy by the evidence. MaGruder said to CNBC that he had the thinking, “This is incredible,” as he left Zhong’s lake house. I believe we have discovered our man.

According to McAleenan, the initial visit enabled the detectives to secure a federal search warrant for Zhong’s residence. On November 9, 2021, McAleenan, MaGruder, and Thompson returned with a sizable police force.

McAleenan had to explain to Zhong that he wasn’t actually attempting to assist him before the police raided the home. He was attempting to persuade him.

“I said, Jimmy, you know me as ‘Trevor.’ I’m actually Trevor McAleenan. I’m a special agent with IRS Criminal Investigation, and we’re here to execute a federal-approved warrant on your house,” McAleenan stated.

“And he kind of had this look like, ‘Am I being punked?’” McLeenan tacked on.

When another officer inserted a “jiggler” into Zhong’s laptop at that precise moment, the cursor started moving continuously and opened the password-protected files, according to McAleenan.

Officers barraged the house, searching every nook and cranny for evidence. According to McAleenan, they discovered a hidden computer and a popcorn tin with millions of dollars worth of bitcoin in an upstairs closet.

McAleenan said that they discovered a safe buried in concrete behind the basement floor tile using sniffer dogs trained to find electronics. According to court filings, the safe had stacks of cash, and physical bitcoins created in the early days of cryptocurrency, precious metals, and other items. Additionally, they discovered a Bitcoin wallet from the 2012 Silk Road breach.

Jimmy Zhong’s Arrest
Physical bitcoin and cash investigators found during the search warrant.
Source: IRS Criminal Investigations

Zhong was busted.

“Really late at night we were able to say we were successful,” said McAleenan. We located the proof we were looking for. Then the home began to glow. Every agent working there, in fact, applauded.

Agents learned more about the peculiar Mr. Zhong as they examined the evidence. He was an original gangster, or OG, in crypto jargon.

Investigators found that Zhong was one of a select handful of early hackers who worked to design and perfect the technology as early as 2009, the year Bitcoin was created. According to McAleenan, he contributed less than some of the other early participants who are now well-known in the Bitcoin world. However, investigators came to the conclusion that he made contributions to the initial Bitcoin code and gave early developers advice on important issues including how to condense the size of the blockchain.

In other words, a hacker who had worked on the creation of Bitcoin ended up being one of the most prolific Bitcoin thieves ever.

In terms of the creators of the Bitcoin core software, he is one of the original gangsters, or OGs, as McAleenan put it. He had occupied this location for some time.

According to Nathaniel Popper, author of “Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money,” Zhong’s ironic place in the history of Bitcoin is representative of the culture that gave rise to the cryptocurrency in the first place.

According to Popper, “everyone came to this for their own reason.” And as a result, it was a pretty unusual and varied gathering of individuals.

Bitcoin, according to Popper, “was always shot through with irony.” “Yes, there was something ironic about a Bitcoin proponent stealing Bitcoin from another Bitcoin proponent. But I think that was also in some ways a part of what defined bitcoin.”

The charge against Zhong was wire fraud. He was given a year and a day in federal prison after pleading guilty. On July 14, 2023, Zhong—who is now 33 years old—started serving his term at the federal prison camp in Montgomery, Alabama.

Zhong ultimately lost the opportunity to keep the stolen Bitcoin. These assets were taken by the US government. According to a forfeiture document CNBC reviewed, authorities introduced a procedure that allowed hackers’ victims to apply to get their Bitcoin back.

The stolen goods were not claimed by anyone. Given that most Silk Road users in 2012 were drug dealers and their clients, this is hardly shocking. The revenues from the sale of the stolen bitcoin were retained by the federal authorities. According to the IRS-CI, a portion of the earnings will probably be given to the Athens-Clarke County Police Department in appreciation for their assistance with the investigation.

CNBC sought to question Zhong about his involvement in the crime as he left the courthouse following his sentencing on April 14. Zhong walked away silently while covering his head with his coat.

Before being sentenced, Zhong told the judge that owning billions of dollars worth of stolen bitcoin made him feel significant.

According to Zhong’s lawyer, Michael Bachner, the U.S. government was never actually harmed by the crime.

Jimmy’s actions have unquestionably not harmed the government in any way, Bachner told CNBC. They would have sold them two years later, in 2014, as they did with other coins, if Jimmy had not stolen them and the government had actually seized them from [Silk Road operator Ross Ulbricht], according to the report.

The government “would have gotten $320 a coin or made somewhere around $14 million” at that moment, according to Bachner. “Now that Jimmy has them, the government has made $3 billion profit,” he said.

Because he was worried about what would happen to Chad, his 13-year-old puppy, Zhong pleaded for no jail time. Zhong has endured a challenging existence. Bachner, who is on the autism spectrum, reported experiencing severe bullying at school. Over the years, he also found comfort in an online community where he could use his computer abilities.

The initial crime committed against Jimmy Zhong—the bitcoin theft in Athens that prompted him to dial 911 in March 2019—has never been located. The offender is still at large.

Read more at News Intercept:

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