The key lifetime of Jimmy Zhong, who stole – and misplaced – greater than $3b

Athens, Georgia, is residence to the College of Georgia, and the police there are used to school town-type crimes: break-ins, bar fights and various rowdiness. That type of factor.

However the 911 name that got here in on the night time of March 13, 2019, was not like something the Athens-Clarke County Police Division had ever encountered.

On the telephone was 28-year-old Jimmy Zhong, an area get together boy and Georgia alum who frequented Athens’ ingesting institutions. He wasn’t like the opposite city rowdies – Zhong was additionally a pc knowledgeable who had an unusually strong digital residence surveillance system.

Now, he was calling to report a criminal offense: a whole lot of 1000’s of {dollars} in crypto forex that he stated had been stolen from his residence. Pondering of all that misplaced cash, Zhong was distressed.

“I am having a panic assault,” Zhong informed the dispatcher, in keeping with a recording obtained by CNBC.

Zhong turned down the dispatcher’s provide of an ambulance, and started making an attempt to elucidate the state of affairs. “I am an investor in bitcoin, which is like a web-based factor,” he stated.

What occurred subsequent would carry an finish to a virtually decade lengthy manhunt and remedy one of many largest crimes of the crypto period. And it additionally would result in the most important seizure of cryptocurrency from a person within the historical past of the Division of Justice.

Zhong’s emergency name that winter night despatched investigators down a protracted digital path that led again to the earliest days of bitcoin and revealed a darkish fact concerning the universe of hackers and coders chargeable for the creation of cryptocurrencies. It is a world the place heroes and villains traded locations and will even be the identical folks.

None of it will go in any respect the way in which Zhong needed.

The 911 name did not produce a suspect within the theft from Zhong’s home. Athens police had been coping with one in every of their first crypto circumstances and unfamiliar with the shadowy underworld, they usually did not make progress within the case.

So Zhong turned to native personal investigator Robin Martinelli, who owns and operates Martinelli Investigations in close by Loganville, Georgia.

A former sheriff’s deputy turned PI, Martinelli was removed from an knowledgeable in crypto. She specialised in course of serving, dishonest spouses and custody investigations, the kind of probes that when obtained her agency featured on an episode of “The Montel Williams Present.”

Martinelli had not too long ago undergone surgical procedure to amputate one leg, leaving her to conduct her surveillance operations with the assistance of a prosthetic.

Nonetheless, she was motivated to resolve Zhong’s case.

“Whenever you get up and do not put two ft on the bottom, however you continue to need to run an organization, you bought to get on the market and kick ass,” Martinelli informed CNBC in an interview for the brand new documentary, “Crypto 911: Exposing a Bitcoin Billionaire.”

She started by inspecting Zhong’s strong surveillance video archive of his residence. In taking a look at footage from the night time of the crime, Martinelli noticed a slender male determine.

“We might inform that they’d like a hood on – a grey hood – however then they’d virtually like a black ski masks,” Martinelli stated.

The suspect appeared to know his approach round Zhong’s home, which led Martinelli to consider that he was a good friend or no less than somebody who had heard Zhong boast about his bitcoin stash. From the video, Martinelli was in a position to decide the suspect’s top and even the dimensions of his palms.

She stated she started her investigation by placing Zhong’s associates below surveillance, following them to their houses and downtown bars on Broad Road and School Avenue. She put trackers on vehicles and scoured social media and carried out background checks.

As she watched Zhong’s bar associates come and go, Martinelli fashioned a low opinion of the group. She described them as “very, very informal, plastic, probably not caring, perhaps utilizing Jimmy a little bit bit.”

Martinelli stated Zhong appeared proof against her theories, particularly once they started to concentrate on his circle of associates. Martinelli ultimately settled on one suspect particularly who she believed had stolen 150 bitcoins from Jimmy. On the time, that quantity of the digital forex was value practically $600,000.

Zhong did not wish to hear it, she stated.

“He would get upset after I would type of point out any person would needed to have recognized the place this money was,” Martinelli stated. And she or he understood why Zhong was so damage by the concept somebody near him might have betrayed him.

“Jimmy needed to be beloved,” she stated. “Jimmy needed associates.”

At the same time as Martinelli soured on the good friend group, she was warming as much as her consumer, who she perceived as an odd man in the hunt for associates.

“Jimmy was a superb man,” she stated. 

Lots of people round Athens felt equally about him.

Within the years earlier than the theft, Zhong was recognized for throwing some huge cash round city. He was the type of man who would purchase a spherical of pricey pictures for the entire bar, a whole lot of {dollars} vanishing in seconds down keen throats.

Though he lived in a modest off-campus bungalow, close to pupil housing and the downtown faculty bar scene, he stayed at fancy inns, together with the Ritz Carlton, the Plaza and the Waldorf Astoria, in keeping with courtroom paperwork CNBC reviewed. He shopped at high-end shops resembling Louis Vuitton, Gucci and Jimmy Choo. He drove fancy vehicles, together with a Tesla. He purchased a second residence, a lake home with a dock in Gainesville, Georgia, a brief drive from Athens. He stocked it with jet skis, boats, a stripper pole, and much and plenty of liquor.

His events had been epic.

Zhong was residing his finest life with no seen supply of earnings. So far as anybody knew, he did not actually have a job. He informed his associates that he’d gotten into bitcoin early, mining 1000’s of cash within the earliest days of the expertise. Zhong informed folks he dabbled in crypto way back to 2009, the 12 months bitcoin was invented by the mysterious Satoshi Nakamoto and a small crew of builders tied on-line to the nameless crypto creator.

No matter Zhong was doing, he was making mountains of money. And he was prepared to splurge.

In 2018, when his beloved Georgia Bulldogs soccer staff made the Rose Bowl, Zhong rounded up a small group of associates for a pilgrimage to Los Angeles. 

“It actually felt like with Jimmy, there have been no limits,” Stefana Masic, a Georgia alum and one of many associates on the journey, informed CNBC. 

Masic stated not solely did Zhong pay for all of the tickets, however he additionally rented a personal jet for the cross-country flight. And he gave every good friend as much as $10,000 for a Beverly Hills procuring spree on Rodeo Drive. They spent it on outfits, equipment and baubles to put on within the metropolis.

“I had by no means flown personal earlier than, and I by no means stayed in such a pleasant Airbnb. It was cool as a result of, you realize, I obtained to expertise loads of issues that I usually would not.”

As he was cheering on his staff in LA, Zhong could not have recognized {that a} small group of brokers from the IRS Prison Investigation unit, led by officers in the identical metropolis, had been painstakingly making an attempt to resolve a criminal offense that dated again years. 

What had captured the investigators’ consideration was a 2012 hack by which somebody had stolen 50,000 bitcoins from a web site on the darkish internet known as Silk Street, in keeping with courtroom paperwork CNBC reviewed. That web site was one of many earliest crypto marketplaces, the place nameless patrons and sellers exchanged all method of illicit materials. It was full of medication, weapons, pornography and different stuff folks needed to maintain secret.

Through the years, the worth of the bitcoin stolen by the Silk Street hacker had soared to greater than $3 billion, in keeping with courtroom paperwork. Investigators might observe the placement of the forex on the blockchain, which is a public ledger of all transactions. However they could not see the identification of the brand new proprietor of the funds. In order that they watched and waited for years because the hacker transferred funds from account to account, peeled some away, and pushed a few of it via crypto “mixers” designed to obscure the supply of the cash.

Lastly, Chainalysis, a blockchain analytics firm that was tracing the digital wallets containing the stolen Silk Street belongings, noticed the hacker made a tiny mistake. He transferred round $800 value to a crypto alternate that adopted established banking guidelines, together with so-called know your buyer processes, requiring actual names and addresses of account holders.

The account was registered in Zhong’s title. The transaction occurred in September 2019, six months after Zhong’s 911 name to the native police.

That alone wasn’t sufficient to show Zhong was the hacker. That they had to make sure.

So the IRS known as the Athens-Clarke County Police Division and requested for some assist, in keeping with sources at each businesses. On the time, the police investigation into Zhong’s personal crime report had been languishing.

“I obtained a name from an IRS agent,” Lt. Jody Thompson, who leads the native property and monetary crimes unit, informed CNBC.  “And he stated, ‘can I come by and communicate to you about Jimmy?’ And I used to be like, positive, I keep in mind this case.”

After that, Thompson joined forces with IRS-CI particular agent Trevor McAleenan and Shaun MaGruder, CEO of a cyber intelligence firm known as BlockTrace. MaGruder’s firm works with the IRS as an embedded contractor and was employed for its expertise untangling difficult blockchain transactions. 

Collectively, the three investigators stated they devised a plan. They might strategy Zhong utilizing a ruse, telling him they had been investigating the crime that he’d known as about, the one by which a thief had stolen a whole lot of 1000’s of {dollars} of his bitcoin.

In actuality, they had been investigating Zhong for a criminal offense they believed he had dedicated. A criminal offense whose proceeds had been now value billions of {dollars}. 

When the three males knocked on the door of his lake residence in Gainesville, Zhong opened it enthusiastically, in keeping with physique digicam footage CNBC completely obtained. He believed the police officer and the 2 specialists had been there to assist remedy his crypto chilly case.

“In case you guys remedy this for me, I’ll invite you out for a celebration,” Zhong informed the trio on the physique digicam footage.

The video exhibits the officers pouring on the reward. They known as his entrance door “lovely.” They known as his audio system “loopy,” they usually complimented his canine, Chad. They requested for a tour of the home. Physique digicam footage exhibits the boys tapping on stone flooring, trying in closets and trying out wooden paneling. Zhong did not realize it, however they had been scouring for secret compartments. 

Zhong introduced investigators to his basement, geared up with a full bar and a stripper pole.

“Is that this your exercise?” McAleenan requested Zhong.

“Nope, that is for women,” Zhong replied.

The physique digicam footage additionally exhibits they obtained a superb take a look at Zhong’s safety system, asking him to elucidate every of its options and capabilities. Zhong can be captured exhibiting them a steel case he stated he as soon as used to retailer $1 million in money so he might impress a lady.

“Did it work?” requested Lt. Thompson.

“Nope,” Zhong stated.

“It by no means does,” Thompson replied.

The legislation enforcement officers discovered that Zhong had a flamethrower on the premises. They usually noticed his AR-15 rifle hanging on the wall.

MaGruder stated Zhong’s stage of sophistication was obvious.

“He was navigating that keyboard like I’ve by no means seen somebody navigate a keyboard,” MaGruder stated. “He did not have to make use of a mouse as a result of he knew all of the hotkeys.”

Enjoying on the ruse, the officers requested Zhong to open his laptop computer and clarify how he got here to have the bitcoin within the first place. Zhong sat on the sofa subsequent to the investigators and entered his password, asking them to show away as he typed.

When he opened the laptop computer, legislation enforcement might see his bitcoin pockets.

“Lo and behold, he had $60 or $70 million value of bitcoins proper there subsequent to us,” MaGruder informed CNBC in an interview. 

The proof was sufficient to persuade the investigators they had been heading in the right direction. As he exited Zhong’s lake home, MaGruder informed CNBC he thought to himself, “That is unbelievable. I believe we discovered our man.”

The primary go to allowed the investigators to acquire a federal search warrant for Zhong’s residence, McAleenan stated. McAleenan, MaGruder, and Thompson returned with an infinite staff of officers on Nov. 9, 2021.

Earlier than the officers raided the home, McAleenan needed to clarify to Zhong that he wasn’t actually making an attempt to assist him. He was making an attempt to convict him.

“I stated, Jimmy, you realize me as ‘Trevor.’ I am really Trevor McAleenan. I am a particular agent with IRS Prison Investigation, and we’re right here to execute a federal-approved warrant on your own home,” McAleenan stated.

“And he type of had this appear like, ‘Am I being punked?'” McAleenan added.

At that second, one other officer slid a tool referred to as a “jiggler” into Zhong’s laptop computer, inflicting the cursor to repeatedly transfer and giving legislation enforcement entry to the password-protected contents of the pc, McAleenan stated.

Officers flooded into the house, cracking open each crevice in the hunt for proof. McAleenan stated in an upstairs closet, they discovered a popcorn tin with a pc hidden inside that held thousands and thousands of {dollars} value of bitcoin.

Utilizing sniffer canines skilled to detect electronics, McAleenan stated they discovered a secure buried in concrete below some basement ground tile. Court docket paperwork stated the secure contained treasured metals, stacks of money and bodily bitcoins minted within the early years of crypto. In addition they discovered a pockets with bitcoin from the unique hack of Silk Street in 2012.

Zhong was busted.

“Actually late at night time we had been in a position to say we had been profitable,” McAleenan stated. “We discovered the proof that we had been in search of. And the home lit up. I imply, each agent on the positioning cheered.”

As they sorted via the proof, brokers found one thing else concerning the uncommon Mr. Zhong. He was, in crypto slang, an “unique gangster,” or OG.

Investigators found that way back to 2009, the 12 months bitcoin was invented, Zhong was amongst a small group of early coders who labored to develop and ideal the expertise. He was a smaller contributor than a number of the different OG gamers who’ve since develop into well-known within the bitcoin neighborhood, McAleenan stated. However investigators concluded that he made contributions to the unique bitcoin code and supplied concepts to the early builders on key matters like the right way to cut back blockchain dimension.

In different phrases, a hacker who had been concerned within the growth of bitcoin itself went on to develop into one of many largest bitcoin thieves of all time.

“He is likely one of the, as we dubbed it, the unique gangsters, OGs, so far as bitcoin core software program builders,” McAleenan stated. “He had been on this house for fairly some time.”

The irony of Zhong’s function within the historical past of bitcoin is emblematic of the tradition that constructed the cryptocurrency within the first place, stated Nathaniel Popper, creator of “Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Attempting to Reinvent Cash.”

“Everyone got here to this for their very own motive,” Popper informed CNBC. “And it was, on account of that, a really form of eclectic and eccentric group of individuals.”

“Bitcoin was all the time shot via with irony,” Popper stated. “Sure, there was one thing ironic a couple of bitcoin proponent stealing bitcoin from one other bitcoin proponent. However I believe that was additionally in some methods part of what outlined bitcoin.” 

Zhong was charged with wire fraud. After pleading responsible, he was sentenced to 1 12 months and a day in federal jail. Zhong, now 33 years previous, started his sentence on the federal jail camp in Montgomery, Alabama, on July 14, 2023.

In the long run, Zhong did not get to maintain the stolen bitcoin. The U.S. authorities seized these belongings. Officers opened a course of that allowed victims of the hack to use to get their bitcoin again, in keeping with a forfeiture doc CNBC reviewed.

No one got here ahead to assert the loot. That is not shocking, on condition that customers of Silk Street in 2012 had been largely drug sellers and their clients. The federal authorities merely bought off the stolen bitcoin and can maintain the proceeds. A few of the income generated will doubtless be shared with the Athens-Clarke County Police Division, in recognition of the native officers’ assist in the case, in keeping with the IRS-CI.

As he left the courthouse after his sentencing on April 14, CNBC tried to query Zhong about his function within the crime. Zhong lined his head along with his coat and left with out saying a phrase. 

In his assertion to the choose earlier than sentencing, Zhong stated having billions in stolen bitcoin made him really feel necessary. 

Zhong’s legal professional, Michael Bachner, says the theft by no means really broken the U.S. authorities.

“The federal government has definitely not been damage by Jimmy’s conduct in anyway,” Bachner informed CNBC. “If Jimmy had not stolen the cash and the federal government had the truth is seized them from [Silk Road operator Ross Ulbricht] they might have bought them two years later in 2014 as they did with different cash.”

At that time, the federal government “would have gotten $320 a coin or made someplace about $14 million,” Bachner stated. “Now, on account of Jimmy having them, the federal government has gotten a $3 billion revenue.”

Zhong requested for no jail time as a result of he was involved concerning the destiny of Chad, his 13-year-old canine. Zhong has had a troublesome life. On the autism spectrum, Bachner stated he was severely bullied in school. And he discovered solace through the years in a web-based neighborhood the place he might deploy his computing expertise. 

As for the unique crime towards Jimmy Zhong — the bitcoin theft in Athens that led him to the 911 name in March 2019 — that crime has by no means been solved. The perpetrator stays at giant.

Zhong’s canine, Chad, is staying with a good friend.