Theft of Bitcoin that topped $3 billion in value leads to one-year prison sentence for James Zhong: ‘I always knew what I did was wrong’

James Zhong, 32, was sentenced Friday in New York federal court, where he pleaded guilty to wire fraud last year. At the time of the heist in 2012, the Bitcoin was worth $620,000. When authorities seized devices holding the stolen Bitcoin in November 2021, its value had exploded, making it the second-largest financial seizure in US history.  

Before he was caught, Zhong spent $16 million of the proceeds on real estate investments, luxury hotels, nightclubs and Lamborghinis, prosecutors said. The value of the Bitcoin seized is now about $1.56 billion. 

US District Judge Paul Gardephe cited the “highly sophisticated nature of the crime” and Zhong’s active concealment of the stolen Bitcoin for nine years until agents raided his house. Zhong faced between 27 and 33 months in prison under advisory guidelines, but Gardephe said he was granting leniency because of the “truly unique circumstances” in the case. Still, the judge said he also wanted to deter other criminals. 

“While the victim in this case happened to be a criminal enterprise, the victim tomorrow could be a legitimate business,” Gardephe said. 

Prosecutors told the judge that Zhong should get prison because he covered up his theft for nearly a decade, moving the Bitcoin through so-called mixers that make it harder to trace transactions by jumbling tokens together. But they also said he should get less than two years in prison, citing his youth, his autism and his help in recovering the stolen crypto. 

Solace in Computer

Zhong’s lawyers asked the judge to spare him a prison term, saying he came from a dysfunctional family and received no love from his divorced parents, who were Chinese immigrants. 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,” Zhong’s lawyers said in court papers. “Having no friends or family he could turn to, Jimmy found solace and friendship in the world of his computer.”

In court, Zhong expressed “shame and remorse,” and told the judge, “I always knew what I did was wrong.” 

He said he hid his crimes as Bitcoin soared in value. 

“I think I buried my head in the sand,” Zhong said. “It made me feel important and worth something.” 

Zhong said that while some college friends have stuck by him, the one who’s been most supportive is his dog Chad, who is old and sick. 

In their sentencing memo, Zhong’s lawyers argued 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 Silk Road’s imprisoned founder, Ross Ulbricht, contacted Zhong and asked him how he took the cryptocurrency. But he never asked for it back — and sent more.

After pleading guilty, Zhong agreed to forfeit $42.7 million as well as additional Bitcoin and property. 

The heist began after Zhong had stored some Bitcoin on Silk Road, the online black market. When he double-clicked the withdrawal button by mistake, he got back twice as much as he put in. Over several days, he deposited more tokens and quickly withdrew them, double-clicking each time. Exploiting that glitch led him to more than 50,000 Bitcoin, each worth about $12 at the time. 

Federal agents seized 50,491 Bitcoin from Zhong’s lakefront home in Gainesville, Georgia, along with $661,900 in cash and gold and silver bars. Zhong stored the crypto 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. 

Zhong attended the University of Georgia from 2008 to 2014, earning a bachelor’s degree in computer science and mining Bitcoin. He also drank excessively and used cocaine, according to a psychiatric examination report in his court file. 

He converted some Bitcoin to $700,000 in cash, so he would have a “case full of money like in the movies,” the report said. “He hoped the visual appeal of the cash would impress a female into having sexual relations with him,” the report said. “He stated his plan did not work.”

In 2019, Zhong reported a burglary at his home his Athens, Georgia, saying someone had stolen a silver brief case with $400,000 in cash. 

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