Thief Who Held $3.4 Billion In Bitcoin Deserves Prison, US Says

(Bloomberg) -- Federal prosecutors urged prison time for a Georgia man who stole more than 50,000 Bitcoin valued at $3.35 billion when authorities seized it in November 2021, which at the time was the second-largest financial seizure in US history.

The seized Bitcoin is now worth $1.48 billion, but James Zhong, 32, should do time behind bars for his heist in 2012 from the Silk Road darkweb site, prosecutors told a federal judge Friday, noting he deserves leniency for helping authorities recover the stolen crypto. Zhong pleaded guilty in November and wants the judge to spare him a prison term. 

Zhong hid his caper for a decade, and spent $16 million of the proceeds on real estate investments, luxury hotels, nightclubs and cars like Lamborghinis and a Tesla, prosecutors wrote in a filing in federal court in New York. The Bitcoin he sold for that high life was valued at $142 million at the time of the seizure, they said.

“Put simply, this conduct warrants imprisonment,” Assistant US Attorney David Felton wrote in the filing. Zhong is scheduled to be sentenced April 14.

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While taking out some Bitcoin he was storing on Silk Road, the notorious online black market, Zhong double-clicked the withdrawal button by mistake, getting back twice as much as he’d put in. He deposited more coins and quickly withdrew them, double-clicking each time, to parlay the glitch into a windfall of 50,000 Bitcoin, each worth about $12 at the time, court records show. 

When federal agents seized 50,491 Bitcoin from Zhong’s lakefront home in Gainesville, Georgia, it had exploded in value. The cryptocurrencies were found stored on devices in a safe under floorboards and on a single-board computer stowed in a Cheetos popcorn tin in a closet. He later surrendered more than 1,000 additional Bitcoin. 

Federal sentencing guidelines call for Zhong to spend 27 to 33 months in prison, and probation officials recommended 24 months. In a memo filed Friday, prosecutors said his youth, his autism and his help in recovering the stolen crypto warrant less than two years behind bars.

But they argued that Zhong concealed his actions for nine years by moving some of the Bitcoin through so-called mixers that make it harder to trace transactions by jumbling tokens together. They also say he was “evasive and untruthful” with an overseas crypto exchange about the source of his holdings. 

‘Clear Message’

Zhong needs to go to prison to send a “strong and clear message to others that cryptocurrency thefts and frauds, no matter the victim, run the risk of incarceration,” the government argued.

“It has, unfortunately, become too easy for advanced, computer-savvy individuals like Zhong to target and victimize holders of cryptocurrency from behind computer screens, and to hide their crimes through a web of concealment-focused transactions, mixers, and offshore cryptocurrency exchanges,” prosecutors said.

Last week, Zhong’s lawyers filed their own sentencing memo arguing he should get probation, arguing that while he had no right to the stolen Bitcoin, neither did Silk Road. They said the marketplace isn’t a victim “in the true sense of the word” under the law, noting that the marketplace’s founder, Ross Ulbricht, contacted Zhong and asked him how he took the cryptocurrency. But he never asked for it back — and sent more.

Zhong is the product of a “dysfunctional family and childhood,” his lawyers said. His divorced parents showed him no love. He was “severely bullied and victimized by his peers because he was different — he was extremely shy, overweight, and most significantly, suffered from undiagnosed autism spectrum disorder,” his lawyers said. 

“Having no friends or family he could turn to, Jimmy found solace and friendship in the world of his computer,” the wrote. 

The case is USA v. James Zhong, 22-cr-00606, US District Court, Southern District of New York (Manhattan). 

(Updates with value of Bitcoin stolen, details from filing.)

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