Jimmy Zhong’s double life: from Bitcoin developer to dark web thief

Original source:CNBC

Original compilation: BitpushNews Yanan

Police in Athens, Ga., home to the University of Georgia, are accustomed to the types of crimes common in college towns, such as break-ins, bar fights and riots.

But on the evening of March 13, 2019, the local police received an unusual call.

The caller was 28-year-old Jimmy Zhong, a local bar-goer and University of Georgia alumnus. In addition to his love of partying, he is also a computer whiz and has a state-of-the-art digital surveillance system installed in his home.

At that time, Jimmy Zhong reported to the police that hundreds of thousands of dollars in cryptocurrency had been stolen from his home. Zhongs heart aches when he thinks about the missing money.

According to a recording obtained by CNBC, Zhong told the operator at the time:"I had a panic attack.

Zhong declined the operators offer to call an ambulance and began to try to explain: I am an investor in Bitcoin. Bitcoin is an online, Internet-based new thing.

No one could have predicted that the call would become the subject of a tracking battle that spanned nearly a decade, revealed one of the crypto-era’s greatest crimes, and led to the second-largest cryptocurrency seizure in the history of the U.S. Department of Justice. Note: At the time of the incident, this was the largest cryptocurrency seizure in U.S. history, but this record was refreshed in February last year by the $4 billion in Bitcoin seized in the 2016 Bitfinex hack.)

That night, Zhong’s phone call led investigators down a secluded path into Bitcoin’s early days. A world where the boundaries between heroes and villains are blurred is slowly unveiled.

All this will exceed Zhongs imagination.

When local police responded to Zhongs theft case, no suspects were found. For cases related to cryptocurrency, the police apparently lack experience in handling cases, so the investigation of the case is progressing slowly.

So Zhong decided to enlist the help of local private detective Robin Martinelli. The private investigator runs his own investigative firm in Loganville, Georgia.

Martinelli is a former police officer turned detective, and while she’s not an expert in cryptocurrency, she has extensive experience handling extramarital affairs and custody issues. Her company was even featured on “The Montel Williams Show.”

Although Martinelli was undergoing amputation due to her illness at the time, she was determined to help Zhong find out the truth.

When you wake up and realize you cant put your feet on the ground, but you still have to manage the company, you have to go out and work and show your skills. Martinelli said in CNBCs new documentary Crypto 911: Exposing Bitcoin Billionaires a Bitcoin Billionaire) told reporters.

She began by reviewing surveillance footage from Zhongs home. While reviewing footage from the night of the murder, Martinelli spotted a thin male figure.

We could see he was wearing a gray hat and then he also had a black ski mask on, Martinelli said.

The suspect appeared to be familiar with Zhongs house, leading Martinelli to believe he might be a friend of Zhongs, or at least someone who had heard Zhong had Bitcoin. From the video, Martinelli was able to determine the suspects height and even the size of his hands.

Martinelli said she would conduct surveillance on Zhongs friends, following them to his residence and downtown bars on Broad Street and College Avenue. The detective placed trackers on the targets cars, scrutinized their social media and conducted background checks.

As she observed the friends Zhong made at the bar, Martinelli seemed to have a critical eye toward the group. She described the group of so-called friends as very casual, fake, not genuine, and probably a little bit taking advantage of Jimmy.

Martinelli said that as her investigation focused on Zhongs circle of friends, Zhong seemed to be resistant to her reasoning. Martinelli eventually zeroed in on a suspect who she believed had stolen 150 Bitcoins from Jimmy. At the time, the market value of those Bitcoins was nearly $600,000.

But when she asked Zhong for her opinion, Zhong didnt want to hear it.

“Every time I mentioned that anyone in his circle knew where the money was, he would get angry,” Martinelli said. She also understands that Zhong would be heartbroken that someone close to him would betray him.

Jimmy wants to be loved, she said. He wants friends.

Although Martinelli was disappointed with Zhongs group of friends, she grew fond of her client. She thinks Zhong is a strange, friend-hungry person.

Jimmy is a good guy, she said.

Not just the private investigator, but many people in the area would have similar feelings about Zhong.

In the years before the thefts, Zhong had become known around town for his lavish spending. He was the kind of guy who would pay for an entire bar, and a few hundred dollars in drinks was nothing to him.

According to court documents reviewed by CNBC, although Zhong lived in a modest small house off campus, close to student dormitories and university bars in the city center, he also frequented luxury hotels, such as the Ritz-Carlton and the Plaza Hotel. and Waldorf Astoria, as well as high-end stores such as Louis Vuitton, Gucci and Jimmy Choo. Tesla and other luxury cars are also his standard equipment. In addition, he purchased a second home—a lakeside house with a dock—in Gainesville, Georgia, not far from Athens. The property also had jet skis, boats, stripper poles and lots and lots of wine.

His life was indeed legendary.

Zhong lived a life of luxury with apparently no source of income. According to people around him, he actually has no official job. He told his friends that he had been exposed to Bitcoin very early, and when the encryption project was just emerging, he mined thousands of Bitcoins. Zhong claimed to the outside world that he had been involved in cryptocurrency as early as 2009. And that year was the first year that Bitcoin came out.

Regardless of Zhongs profession, one thing is certain: he makes a lot of money and spends it like water.

In 2018, when his beloved Georgia Bulldogs football team reached the Rose Bowl, Zhong gathered a small group of friends and made a pilgrimage to Los Angeles.

“Being with Jimmy, you feel like he can do anything,” University of Georgia graduate Stefana Masic told CNBC. She also went on that trip.

Masic said Zhong not only paid for everyones tickets but also rented a private jet. He also generously gave each of his friends $10,000 to spend on a shopping spree on Rodeo Drive in Beverly Hills. The group spent their money on clothes, accessories and jewelry to wear into town.

Id never flown on a private jet before or stayed in an Airbnb this nice. It was cool because, you know, I got to experience a lot of things that I wouldnt normally get to experience.

As he cheered on his team in Los Angeles, Zhong couldnt have known that a team of agents from the IRS Criminal Investigation Division, led by officials from the same city, were painstakingly solving a crime from years ago.

According to court documents reviewed by CNBC, what caught the attention of investigators was a 2012 hacking incident in which someone from a website calledsilk road(Silk Road)dark webWebsite stole 50,000 Bitcoins. The site was one of the first cryptocurrency marketplaces, where anonymous buyers and sellers traded various illegal items. The entire site is filled with drugs, guns, porn, and other shady stuff.

Over the years, the value of Bitcoin stolen by hackers from the Silk Road website has soared to more than $3 billion, court documents show. While investigators can trace the bitcoins on the public blockchain, they cannot determine the true owners of the funds. Therefore, they chose to wait and see, patiently waiting and observing for years how hackers transferred funds between accounts and used so-called coin mixers to disguise the source of the funds.

Finally, blockchain analytics firm Chainalysis, which has been tracking the digital wallets containing Silk Road’s stolen assets, discovered that the hacker made a small mistake — he/she transferred approximately $800 worth of crypto assets to a cryptocurrency exchange. Place. The exchange follows established banking rules and account holders are required to provide their real names and addresses to complete the required KYC (Know Your Customer) process.

The account was registered in Zhong’s name. The transfer occurred in September 2019, six months after Zhong reported it to local police.

This alone was not enough to prove that Zhong was a hacker, and investigators needed more evidence.

So the IRS called the Athens-Clarke County Police Department for help. At the time, the police investigation into Zhong was at a standstill.

I got a call from an IRS agent, Lt. Jody Thompson, supervisor of the local Property and Financial Crimes Unit, told CNBC. And the agent said, can I come over here and talk to you about Jimmy? And I was like, Of course, I remember the case.

After that, Thompson teamed up with Agent Trevor McAleenan of the IRS Criminal Investigation Division and another professional Shaun MaGruder to form the detective team. Shaun MaGruder is the CEO of a cyber intelligence company called BlockTrace. The intelligence firm is very good at solving complex blockchain transactions, allowing it to work with the IRS.

The three investigators said they worked together to develop a plan. In order to get close to Zhong, they set up a trap and told Zhong that they were investigating a Bitcoin theft case that he had previously reported to the police.

In reality, they were investigating Zhong for a crime he allegedly committed. The proceeds of the crime are now worth billions of dollars.

According to law enforcement camera footage obtained exclusively by CNBC, when the three men knocked on the door of Zhongs lakefront home in Gainesville, Zhong opened the door to greet them enthusiastically. He thought the three were there to help solve his cold case of cryptocurrency theft.

If you help me solve the case, Ill invite you out to a party, Zhong told the three in the law enforcement camera footage.

In the video, the agents are very polite to Zhong. They complimented his front door as beautiful, said his stereo was cool, and complimented his dog, Chad. Agents also requested a tour of Zhongs house. Security camera footage shows agents tapping on stone floors, looking in closets and inspecting wooden paneling. Unbeknownst to Zhong, they were searching for a secret compartment in the house.

Zhong led the detectives to his basement, which was equipped with a full bar and a dance pole.

Is this what you use for exercise? McAleenan asked Zhong.

No, thats for girls, Zhong replied.

The law enforcement camera footage also shows agents going over Zhongs security system and asking him to explain each feature. In the video, Zhong also showed detectives a metal box that he said he had used to store $1 million in cash in an attempt to impress a woman.

Did it work? Lieutenant Thompson asked.

No, Zhong said.

That approach will never work, Thompson responded.

Law enforcement officials learned that Zhong had a flamethrower inside his house. They also saw his AR-15 rifle hanging on the wall.

MaGruder said Zhong is a very shrewd and sophisticated person.

The speed with which he operates a keyboard is like nothing Ive ever seen, MaGruder said. He doesnt need to use a mouse because he knows all the shortcuts.

They took the opportunity to ask Zhong to open his laptop and explain how he obtained the Bitcoin. Zhong sat on the couch next to the detective. As Zhong entered his password, he asked the others to turn away.

When Zhong turned on his computer, agents could see his Bitcoin wallet.

Look, he has sixty or seventy million dollars worth of Bitcoin, right next to us, MaGruder said in an interview with CNBC.

The evidence was enough to convince detectives they were in the right place. As he left Zhongs lakefront home, MaGruder told CNBC he thought to himself: This is incredible. I feel like we have a suspect.

MaGruder said the first contact with Zhong led agents to obtain a federal search warrant for Zhongs residence. On November 9, 2021, McAleenan, MaGruder and Thompson led a large group of officers back to Zhongs residence.

Before deputies searched the house, McAleenan had to explain to Zhong that he wasnt really trying to help him, he was trying to convict him.

I told him, Jimmy, you know me as Trevor, McAleenan said. But Im Trevor McAleenan, an agent with IRS Criminal Investigation. Were here to execute a federal search warrant on your house.

He had this look on his face like Am I being screwed? McAleenan added.

At that point, another officer plugged a device known as a jiggler into Zhongs laptop, causing the cursor on the screen to move, allowing law enforcement to access the computers encrypted content.

Officers stormed into Zhongs home and rummaged through boxes looking for evidence. McAleenan said that upstairs in a closet they found a popcorn jar containing a computer. That computer contained millions of dollars worth of Bitcoin.

McAleenan said police used sniffer dogs trained to detect electronic devices and found a safe buried in concrete under tiles in the basement. Court documents show the safe contained precious metals, stacks of cash and physical bitcoins minted in the early days of the cryptocurrency. Additionally, police found a wallet containing bitcoins stolen during a 2012 hack of the Silk Road website.

Zhong was captured and brought to justice.

It was late at night and we were finally able to say we had it, McAleenan recalled. We found the key piece of evidence. The house lit up. I mean, every agent on the scene was cheering.

Upon further investigation, investigators learned more about this particular Mr. Zhong. In the encryption field, he is regarded as the OG - Original Gangster, which refers to a veteran figure who entered the encryption circle very early and gained respect.

Investigators found that as early as 2009, the year Bitcoin was launched, Zhong was one of a small group of early developers working on developing and perfecting the cryptographic technology. McAleenan said his contributions were relatively minor compared to some other OG players who later became famous in the Bitcoin community. But investigators ultimately concluded that Zhong did contribute to Bitcoin’s original code and advised early developers on key issues such as how to shrink the blockchain.

In other words, a programmer who was involved in the development of Bitcoin became one of the most influential Bitcoin thieves in history.

McAleenan said: He is what we call the Original of Crypto, or OG for short, who can be seen as a big shot involved in the development of Bitcoin Core. He has been deeply involved in this field for a long time.

Author of Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money. Nathaniel Popper said there’s a certain irony to Zhong’s role in Bitcoin’s history that reflects the culture that created the cryptocurrency in the first place.

Everyone is in this for their own reasons, Popper told CNBC. So its an incredibly diverse and weird group of people here.

Popper said: The history of Bitcoin is always full of ironies. Indeed, it is ironic that one Bitcoin supporter steals Bitcoin from another Bitcoin supporter. But I think this It’s also part of the definition of Bitcoin to some extent.”

Zhong was charged with wire fraud. After pleading guilty, he was sentenced to one year and one day in federal prison. Zhong, 33, began serving his sentence at the federal prison in Montgomery, Alabama, on July 14, 2023.

In the end, Zhong did not keep the Bitcoins he stole. The U.S. government seized the assets. According to a document reviewed by CNBC, the U.S. government has launched relevant procedures to allow victims to apply to retrieve their stolen Bitcoins.

But no one came to claim it. This is understandable because the users of the Silk Road website in 2012 were mainly drug dealers and their clients. So the federal government sold the stolen Bitcoins and kept the proceeds. According to IRS-CI, some of the proceeds may be used to reward local police for their help in the case.

On April 14, after the court verdict was announced, CNBC tried to interview Zhong, who was leaving the court, to ask him about his role in the case. Zhong covered his head with his coat and left without saying a word.

In a statement to the judge before sentencing, Zhong said owning billions of stolen bitcoins made him feel important.

Zhongs attorney, Michael Bachner, said the theft did not actually harm the U.S. government.

Bachner told CNBC: Jimmys actions did not cause any loss to the government. If Jimmy had not stolen the coins, the government would have confiscated them from Silk Road operator Ross Ulbricht. Then two years later, in 2014, the government The confiscated Bitcoins will be sold like other crypto assets.”

Bachner added: The market value of Bitcoin in 2014 was $320. So, if the government had sold these Bitcoins that year, they would have made a profit of $14 million. But now, because Jimmy took away When the government sells these Bitcoins, it will make a profit of $3 billion.

Zhong asked to be spared prison time because he feared for the life of his 13-year-old dog, Chad. Bachner said Zhong had lived a difficult life. He has autism and was severely bullied at school. For years, he found solace in an online community where he could put his computer skills to use.

As for the beginning of this story, the Bitcoin theft in Athens in March 2019, it remains unsolved. The criminals are still at large.

Zhongs dog, Chad, now lives with a friend.