By Eamon Javers, Paige Tortorelli, CNBC; Compiled: Pine Snow, Golden Finance
- In 2012, 50,000 bitcoins were stolen from Silk Road, an illegal dark web marketplace. Over time, the value of stolen Bitcoin soared to over $3 billion, and it remained one of the biggest mysteries in the cryptocurrency world for years.
- Nearly a decade after the 2012 hack, thieves made a serious mistake that allowed IRS-CI to crack the case.
- CNBC obtained never-before-seen clues showing how investigators linked burglars to cryptocurrency theft.
Athens, Georgia, home to the University of Georgia, police regularly deal with crimes related to the university town, such as burglaries, bar fights, and riots. However, the 911 call received on the night of March 13, 2019, was a situation never encountered by the Athens-Clark County Police Department.
On the other end of the line was Jimmy Zhong, a 28-year-old local party boy and University of Georgia alumnus who frequented bars in Athens. Unlike other town trick-or-treaters, Chung is also a computer expert with an unusually powerful digital home monitoring system.
Now, he’s calling to report that hundreds of thousands of dollars worth of cryptocurrency have been stolen from his home. Thinking about the lost money, Zhong felt very uneasy.
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In March 2019, someone broke into Zhong’s house and shattered the window.
“I’m panicking,” Zhong told the answering officer, where CNBC obtained an audio recording.
Zhong refused to pick up the ambulance offered by the officer and began trying to explain the situation. “I’m an investor in Bitcoin, which is an online thing,” he said.
What happened next ended nearly a decade of manhunts and solved one of the biggest crimes of the cryptocurrency era. It also led to the largest cryptocurrency seizure of an individual in DOJ history.
That winter night, Zhong’s emergency call put investigators on a lengthy digital trail that traced back to Bitcoin’s early days and revealed dark truths about the hackers and programmers responsible for creating the cryptocurrency. It’s a world where heroes and villains swap places, maybe even the same person.
Nothing will go as Zhong wants.
The 911 call did not identify the suspect in the Zhong family theft. Police are working on their first cryptocurrency case, and they have been unable to make progress on the case due to their unfamiliarity with this murky world.
So Zhong turned to Robin Martinelli, a local private investigator who owned and operated Martinelli Investigations near Loganville, Georgia.
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Robin Martinelli, owner and private investigator of Martinelli Investigative Company.
Martinelli was a former deputy sheriff and later became a PI, but he is far from an expert in the crypto space. She specializes in litigation services, spousal fraud and custody investigations that have seen her company appear on an episode of “The Montell Williams Show.”
Martinelli recently underwent an amputation that allowed her to undergo surveillance surgery with the help of a prosthesis.
Still, she’s motivated to solve Zhong’s case.
In an interview with CNBC’s new documentary “Cryptocurrency 911”, Martinelli said: "When you wake up and no longer put your feet on the ground, but you still need to run a company, you have to go out and do it. ”
She first checked the Zhong family’s reliable surveillance video archives. While reviewing footage from the night of the crime, Martinelli spotted a slender male figure.
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Surveillance footage obtained by CNBC shows someone breaking into Zhong’s home in March 2019.
Martinelli said: "We could tell they were wearing gray hoods like hoods, but they were almost wearing black ski masks. ”
The suspect seemed to be familiar with the Zhong family, which led Martinelli to believe that he was a friend, or at least someone who had heard Zhong boast that he had hidden bitcoins. From the video, Martinelli was able to determine the height of the suspect, and even the size of his hands.
She said that when she began her investigation, she placed surveillance on Zhong’s friends, tracking them to their homes and downtown bars on Broad Street and College Avenue. She installed trackers in cars, browsed social media and conducted background checks.
As she watched Zhong’s bar friends come and go, Martinelli had a low opinion of the group. She described them as “very, very casual, plastic, not very caring, maybe a little bit of Zhong.” ”
Martinelli said Zhong seemed resistant to her theory, especially when he started following his circle of friends. Martinelli eventually identified a suspect she believed had stolen 150 bitcoins from Zhong. At the time, the digital currency was worth nearly $600,000.
Zhong, she said, didn’t want to hear it.
“He gets upset when I mention that someone has to know where that cash is,” Martinelli said. She also understands why Zhong feels so hurt because those around him may betray him.
“Zhong wants to be loved,” she said. “He wants friends.”
Although Martinelli was bored with this circle of friends, she developed a passion for her client, who she considered a strange person looking for friends.
“Zhong is a good person,” she said.
Many people around him have similar opinions about him.
In the years leading up to the theft, Zhong was known for squandering money in town. He was the kind of person willing to buy an expensive round of liquor for an entire bar, hundreds of dollars disappearing down his throat in seconds.
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Zhong poses with two women in front of a limousine.
Although he lived in a modest off-campus bungalow, close to student housing and downtown college bar venues, he stayed at upscale hotels, including The Ritz-Carlton, Plaza and Waldorf Astoria, according to court documents reviewed by CNBC. He shops at high-end stores like Louis Vuitton, Gucci and Jimmy Choo. He drove luxury cars, including a Tesla. He bought a second home, a lakeside villa with a marina, just a short drive from Athens, in Gainesville, Georgia. He filled it with jet skis, boats, strip poles and lots of wine.
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Zhong poses with two women on a yacht.
His party was epic.
Zhong lived his best life, but had no obvious source of income. As far as everyone knows, he didn’t really get a job. He told his friends that he entered the bitcoin space early on, mining thousands of bitcoins at the beginning of the technology. Zhong told people that he got involved in the cryptocurrency space back in 2009, when Bitcoin was invented by the mysterious Satoshi Nakamoto and a small group of developers who connected online with anonymous cryptocurrency creators.
No matter what Zhong does, he can make a lot of money. And he is willing to splurge.
In 2018, when his beloved Georgia Bulldog football team won the Rose Bowl, Zhong gathered a small group of friends on a pilgrimage to Los Angeles.
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Zhong poses with a group of friends at the 2018 Rose Bowl game.
“It really felt like there were no limits to being with Zhong,” Stefana Masic, a Georgia alumnus and one of the travel’s friends, told CNBC.
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Stefana Masic, a friend of Zhong.
Masic said Zhong not only paid for all the airfare, but also chartered a private jet to fly internationally. He also offered each friend a reward of up to $10,000 for their shopping spree on Rodeo Drive in Beverly Hills. They spend their money on clothes, accessories, and gadgets worn in the city.
"I’ve never flown in a private jet before and I’ve never stayed in such a beautiful Airbnb [US short-term rental platform]. It’s cool because, you know, I experience a lot of things that I wouldn’t normally go through. ”
While Zhong was cheering on his team in Los Angeles, he had no way of knowing that a small group of agents from the IRS’s Criminal Investigation Unit, led by officials in the same city, were painstakingly trying to solve a crime from years ago.
According to court documents reviewed by CNBC, what caught the attention of investigators was a 2012 hack in which 50,000 bitcoins were stolen from a darknet website called Silk Road. The site was one of the first cryptocurrency marketplaces where anonymous buyers and sellers exchanged various illegal materials. It’s full of drugs, guns, pornography, and other things that people want to keep secret.
According to court documents, the value of bitcoin stolen by Silk Road hackers has soared to more than $3 billion over the years. Investigators can trace where cryptocurrencies are located on the blockchain, a public distributed ledger of all transactions. But they can’t see the identity of the new owner of the funds. So, they watched and waited for years as hackers transferred funds from one account to another, stripped some of them, and passed some of them through crypto “mixers” designed to mask the source of the funds.
Finally, blockchain analytics firm Chainalysis was tracking down digital wallets containing stolen Silk Road assets and discovered that hackers had made a small mistake. He transferred about $800 worth of funds to a cryptocurrency exchange that follows established banking rules, including the so-called “Know Your Customer Process,” which requires account holders to provide their real names and addresses.
The account is registered under the name of Zhong. The transaction took place in September 2019, i.e. Zhong
That alone is not enough to prove that Zhong is a hacker. They must be sure.
According to sources at both agencies, the IRS called the Athens-Clark County Police Department and asked for help. At the time, the police investigation into Zhong’s own criminal report had been stalled.
Lt. Jody Thompson, who oversees the local property and financial crimes unit, told CNBC: "I got a call from an IRS agent. "He said, ‘Can I come and talk to you about Zhong?’ I thought, of course, I remember the case. ”
Call the local police at 911 six months later.
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Lieutenant Jody Thompson, Athens-Clark County Police.
Thompson has since teamed up with IRS-CI agent Trevor McAleenan and Shaun MaGruder, CEO of cyber intelligence firm BlockTrace. MaGruder’s company works with the IRS as an embedded contractor and is hired for its experience in solving complex blockchain transactions.
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Shum Magridr, CEO of Blacktruss.
Three investigators said they worked together on a plan. They would approach Zhong using a ruse to tell him that they were investigating the criminal act he called and that a thief had stolen hundreds of thousands of dollars worth of his bitcoins.
In fact, they are investigating the crimes committed by Zhong. The proceeds of this crime are now worth billions of dollars.
Body-camera footage obtained exclusively by CNBC shows that Zhong enthusiastically opened the door when the three men knocked on the door of his lakeside home in Gainesville. He trusts the police officer and two experts to help solve his cryptographic case.
“If you guys help me with this, I’ll invite you out to a party,” Zhong told the trio in footage from his body camera.
The video shows police praising him. They called his front door “pretty.” They called his speaker “crazy” and praised his dog, Chad. They asked to visit the house. Footage from the body camera showed the men banging on the stone floor, inspecting closets and inspecting wood paneling. Unbeknownst to Zhong, they were searching the chamber.
Zhong took investigators to his basement, which was equipped with a full bar and strip pole.
“Is this what you use to exercise?” McCullinan asked the bell.
“No, that’s for girls.” Zhong replied.
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Body-camera footage obtained by CNBC showed investigators in Zhong’s basement, which had a full bar and a strip pole.
Footage from the body camera also showed that they took a closer look at Zhong’s security system, asking him to explain each of its functions. Zhong was also photographed showing them a metal box that he said he once used to store $1 million in cash to impress a woman.
“Does it work?” Lieutenant Thompson asked.
“Nope.” Zhong said.
“Never,” Thompson replied.
Law enforcement officers learned that Zhong’s house had flamethrowers. They saw his AR-15 rifle hanging from the wall.
Maggrud says Zhong’s level of sophistication is obvious.
“He uses the keyboard like I’ve never seen anyone use a keyboard,” Mr. Margrud said. “He doesn’t have to use the mouse because he knows all the hotkeys.”
The police used this ruse to ask Zhong to open his laptop and explain how he obtained the bitcoins in the first place. Zhong sat on the couch next to the investigators, entered the password, and asked them to turn away as he typed.
When he opened his laptop, law enforcement could see his bitcoin wallet.
MaGruder said in an interview with CNBC: "You see, he’s right next to us, and he’s $60 million or $70 million worth of Bitcoin. ”
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Side-camera footage obtained by CNBC shows Zhong showing investigators millions of dollars in bitcoin on his laptop.
The evidence is enough to convince investigators that they are on the right path. Maggrud told CNBC that when he left Zhong’s house, he thought to himself, "This is incredible. I think we found our people. ”
McCullinan said the first visit allowed investigators to obtain a federal search warrant against Zhong. On November 9, 2021, McCullinan, Magrude, and Thompson returned with a large team of officers.
Before police searched the house, McCullinan had to explain to Zhong that he wasn’t really trying to help him. He tried to convict him.
"I said, Zhong, you know my name is ‘Trevor’. “I’m actually Trevor McCullinan. I’m an agent for the IRS Criminal Investigation Bureau, and we’re here to execute a federally approved search warrant for your house,” McCullinan said.
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Trevor McAleenan is an IRS-CI agent.
"His expression was kind of like ‘Am I being punk?’ McCullinan added.
At the time, McAlinan said, another officer slid a device called “jiggler” into Zhong’s laptop, causing the cursor to move constantly, allowing law enforcement to access password-protected content in the computer.
Police swarmed, opening every crevice for evidence. McCullinan said they found a popcorn jar in the upstairs closet that contained a computer containing millions of dollars worth of bitcoin.
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Investigators found a single-board computer hidden inside a popcorn jar containing millions of dollars worth of bitcoin.
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Investigators found a veneer computer inside a popcorn can.
McAlinan said they used trained sniffer dogs to detect electronics and found a safe buried in concrete under basement floor tiles. Court documents say the safe contained precious metals, piles of cash and physical bitcoin minted in the early days of the cryptocurrency. They also found a wallet containing Bitcoin, which came from the original Silk Road hack in 2012.
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Investigators found physical bitcoin and cash in the search warrant.
Zhong was caught.
“It’s late at night when we can say we succeeded,” McCullinan said. "We found the evidence we were looking for. The house lit up. I mean, every agent on the site cheered. ”
As they collated the evidence, the agents discovered something else about the unusual Zhong. In cryptographic slang, he is a “primitive gangster” or OG.
Investigators found that back in 2009, the year Bitcoin was invented, Zhong was one of a small group of early programmers working to develop and perfect the technology. McAleenan said that his contribution was smaller compared to some other OG players who later became famous in the Bitcoin community. But investigators concluded that he contributed to the original Bitcoin code and provided early developers with ideas on key topics such as how to reduce the size of the blockchain.
In other words, a hacker involved in the development of Bitcoin itself went on to become one of the biggest Bitcoin thieves of all time.
McCullinan said: "As far as Bitcoin Core software developers are concerned, he is one of the original gangsters (OGs) that we would call them. “He’s been in this space for a long time.”
Nathaniel Popper, author of Digital Gold: Bitcoin and the Inside Story of Anachonists and Millionaires Who Tried to Reinvent Money, said Zhong’s role in Bitcoin’s history is ironic, symbolizing the culture that created the cryptocurrency in the first place.
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Nathaniel Popper, author of Digital Gold: Bitcoin and the Inside Story of Unadaptables and Millionaires Trying to Reinvent Money.
Popper told CNBC: "Everyone comes here for their own reasons. “So it’s a very eclectic, eccentric bunch.”
“Bitcoin is always full of irony,” Popper said. "Yes, it’s a bit ironic that one Bitcoin backer steals Bitcoin from another. But I think that’s also part of the definition of Bitcoin in a way. ”
Zhong was charged with telecommunications fraud. After pleading guilty, he was sentenced to serve one year and one day in federal prison. Zhong, 33, began serving his sentence at the Federal Penitentiary in Montgomery, Alabama, on July 14, 2023.
In the end, Zhong failed to keep the bitcoin in his hand. The U.S. government confiscated the assets. According to a confiscation document reviewed by CNBC, officials launched a process that allowed victims of the hacking to apply to get their bitcoins back.
No one came forward to ask for the stolen goods. This is not surprising, as the users of Silk Road in 2012 were mainly drug dealers and their customers. The federal government simply sells the stolen bitcoins and keeps the proceeds. According to the IRS, a portion of the revenue may be shared with the Athens-Clark County Police Department in recognition of the help provided by local officers in the case.
As he left the courthouse after the sentencing was pronounced on April 14, CNBC tried to question Zhong’s role in the crime. Zhong covered his head with his coat and left without saying a word.
Speaking to the judge before sentencing, Zhong said owning billions of stolen bitcoins made him feel important.
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Zhong attended the sentencing with his lawyers, Michael Bachner and John Garland.
Zhong’s lawyer, Michael Bachner, said the theft did not actually harm the U.S. government.
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Michael Bachner, Zhong’s lawyer.
Bahner told CNBC: "The government has certainly not been harmed by Zhong’s actions. “If Zhong hadn’t stolen the coins and the government had actually confiscated them from [Silk Road operator Ross Ulbricht], they would have sold them two years later in 2014, just like any other coin.”
By then, Bahner said, the government “will receive $320 per coin, or about $14 million.” “Now, thanks to Zhong having them, the government has made $3 billion in profits.”
Zhong asked not to be sentenced to jail because he feared for the fate of his 13-year-old dog, Chad. Zhong’s life was not easy. With autism spectrum disorder, Bachner said he was severely bullied at school. Over the years, he has found solace in online communities where he can put his computing skills to work.
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Charlie, Zhong’s old dog.
As for Zhong’s original crime — a bitcoin theft in March 2019 that led him to call 911 — it was never solved. The perpetrators remain at large.
Zhong’s dog, Chad, lives with friends.
