Damian Williams, the US Attorney for the Southern District of New York, and Tyler Hatcher, an IRS federal agent, announced on Monday that James Zhong has pleaded guilty to wire fraud in obtaining over 50,000 Bitcoin illegally from the Silk Road.
Started in 2011, the Silk Road was a dark web marketplace utilizing Bitcoin for payments, which was shut down by the federal government in 2014. With 1 count of wire fraud, Zhong will serve a maximum penalty of 20 years in prison and the seizure of all assets.
Worth over $3.6 billion at the time of seizure, that value has now plummeted to around $1 billion.
The report started off by slamming the former Silk Road marketplace as an "online darknet black market" used by "numerous drug dealers and other unlawful vendors."
This viewpoint by is often chastised by Bitcoiners.
Ross Ulbricht, the ex-leader of the Silk Road, is serving a double life prison sentence plus 40 years and no parole after being indicted in 2015.
Ironically, while others in the past were incarcerated due to being users of the Silk Road, Zhong was actually indicted for stealing from the marketplace instead.
From the report:
"In September 2012, Zhong executed a scheme to defraud Silk Road of its money and property by (a) creating a string of approximately nine Silk Road accounts (the “Fraud Accounts”) in a manner designed to conceal his identity; (b) triggering over 140 transactions in rapid succession in order to trick Silk Road’s withdrawal-processing system into releasing approximately 50,000 Bitcoin from its Bitcoin-based payment system into Zhong’s accounts."
Zhong clearly enacted a scheme far more sinister than many other criminals involved in the Silk Road. The dialogue used in the report almost makes the Silk Road sound like a wronged business:
"While executing the September 2012 fraud, Zhong did not list any item or service for sale on Silk Road, nor did he buy any item or service on Silk Road. Zhong registered the accounts by providing the bare minimum of information required by Silk Road to create the account; the Fraud Accounts were merely a conduit for Zhong to defraud Silk Road of Bitcoin."
As it turns out, even wronging an illegal enterprise can result in prison time. This begs the question whether Ross Ulbricht was given a fair sentence if someone like Zhong obtained far more money and got a lesser sentence.
CNBC reported that Zhong frequently posted pictures of himself on yachts and at expensive events on his social media accounts. The only expensive event he's experiencing now is the seizure of all of his assets.