Decoding Jimmy Zhong’s Double Life From Bitcoin Development Guru to Dark Web Mastermind

Revealing the Two Sides of Jimmy Zhong Tracing the Journey From Bitcoin Pioneer to Dark Web Mastermind

Author: CNBC

Translation: LianGuaiBitpushNews Yanan

Athens, Georgia, is the location of the University of Georgia, where the police are accustomed to common crimes in college towns, such as home invasions, bar fights, and various riots.

But on the evening of March 13, 2019, the local police received a unique distress call.

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The caller was Jimmy Zhong, a 28-year-old local who frequently patronizes bars and is an alum of the University of Georgia. Besides his love for parties, he is also a computer expert who has installed an advanced digital surveillance system in his home.

At that time, Jimmy Zhong reported to the police that he had hundreds of thousands of dollars worth of cryptocurrency stolen from his home. The thought of the lost money made Zhong heartbroken.

According to the recording obtained by CNBC, Zhong said to the operator, “I’m having a panic attack.”

Zhong refused the operator’s suggestion to call an ambulance and started to try to explain: “I’m a Bitcoin investor. Bitcoin is a new online, internet-based thing.”

No one expected that this phone call would lead to a nearly decade-long investigation, revealing a major crime in the crypto era, and resulting in the second largest seizure of cryptocurrency in the history of the United States Department of Justice (Translator’s Note: At the time, it was the largest seizure of cryptocurrency in the history of the United States, but this record was surpassed in February last year when $4 billion worth of Bitcoin was seized in the 2016 Bitfinex hack).

That night, Zhong’s call took investigators down a hidden path to the early days of Bitcoin. A world where the boundaries between heroes and villains were blurred slowly unveiled itself.

All of this would exceed Zhong’s imagination.

The local police did not find any suspects when dealing with Zhong’s theft case. They clearly lacked experience in handling cases related to cryptocurrency, so the investigation progressed slowly.

Therefore, Zhong decided to seek the help of local private investigator Robin Martinelli. This private detective runs her own investigation company in Loganville, Georgia.

Martinelli used to be a police officer before switching careers to become a detective. Although she is not an expert in the field of cryptocurrency, she has extensive experience in dealing with infidelity and custody issues. Her company has even appeared on “The Montel Williams Show” (Translator’s Note: A popular American talk show focusing on social issues, which ended in 2008).

Despite undergoing amputation surgery due to illness, Martinelli was determined to help Zhong uncover the truth.

“When you wake up and find that you can’t stand on both feet, but you still need to manage your company, you have to go out and work and show your skills.” Martinelli told reporters in CNBC’s new documentary “Crypto 911: Exposing a Bitcoin Billionaire.”

She first reviewed the surveillance footage from the Zhong family’s home. While watching the footage from the night of the incident, Martinelli spotted a slim male figure.

“We can see that he was wearing a gray hat, and he also had on a black ski mask,” said Martinelli.

The suspect seemed familiar with Zhong’s house, which led Martinelli to believe that he might be Zhong’s friend or at least someone who had heard about Zhong owning Bitcoin. Through the video, Martinelli was able to determine the suspect’s height and even the size of his hands.

Martinelli stated that she would keep an eye on Zhong’s friends, tracking them to their residences as well as the downtown bars on Broad Street and College Avenue. The detective installed a tracker on the targets’ vehicles, carefully scrutinized their social media, and conducted background checks.

As she observed the friends Zhong made at the bar, Martinelli seemed to have some reservations about the group. She described these so-called friends as “very casual, fake, and insincere, possibly using Jimmy.”

Martinelli mentioned that as her investigation focused more on Zhong’s circle of friends, Zhong seemed to resist her reasoning. Martinelli eventually identified a suspect whom she believed had stolen 150 Bitcoins from Jimmy. At the time, these Bitcoins were valued at nearly $600,000.

However, when she presented her findings to Zhong, he did not want to listen.

“He gets really angry whenever I mention that someone in his circle knows where the money is,” Martinelli said. She also understood that Zhong felt hurt by the betrayal of those close to him.

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

Despite Martinelli’s disappointment with Zhong’s group of friends, she found herself increasingly fond of her client. She thought Zhong was a strange person who longed for companionship.

“Jimmy is a good guy,” she said.

It’s not just this private detective, many locals also have a similar opinion of Zhong.

In the years leading up to the theft, Zhong was known for his lavish spending in town. He was the type of person who would pick up the tab for the whole bar, paying hundreds of dollars for drinks without batting an eye.

According to court documents reviewed by CNBC, although Zhong lives in a modest little house off campus, close to student dorms and downtown university bars, he also frequents luxury hotels such as The Ritz-Carlton, Square Hotel, and The Waldorf. He also shops at high-end stores like Louis Vuitton, Gucci, and Jimmy Choo. Tesla and other luxury cars are also his go-to. In addition, he purchased a second home in Gainesville, Georgia – a lakeside villa with a dock, not far from Athens. The residence also includes jet skis, boats, a stripper pole, and lots and lots of alcohol.

His life is truly “legendary”.

Despite apparently having no source of income, Zhong lives a lavish life. According to those around him, he doesn’t actually have a formal job. He tells his friends that he got involved with Bitcoin very early on and mined thousands of bitcoins when the cryptocurrency was just taking off. Zhong claims to have been involved in cryptocurrency as early as 2009, the year Bitcoin was introduced to the world.

Regardless of Zhong’s occupation, one thing is certain – he made a lot of money and spends it like water.

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

“With Jimmy, you feel like he’s capable of anything.” said Stefana Masic, a graduate of the University of Georgia who also joined the trip, to CNBC.

Masic said that Zhong not only paid for everyone’s tickets, but also rented a private plane. He generously provided each friend with a $10,000 spending limit to go on a shopping spree on Rodeo Drive in Beverly Hills. The group spent the money on clothes, accessories, and jewelry.

“I’ve never been on a private plane before or stayed in such a nice Airbnb. It was cool because, you know, I got to experience things I don’t usually get to experience.”

While Zhong was cheering on his team in Los Angeles, he couldn’t have known that under the guidance of local officials, a group of investigators from the Criminal Investigation Division of the US Internal Revenue Service were diligently investigating a crime case from years ago.

According to court documents reviewed by CNBC, the investigators’ attention was drawn to a hacking incident in 2012. Someone stole 50,000 Bitcoins from a dark web website called “Silk Road.” The website was one of the earliest cryptocurrency markets where anonymous buyers and sellers traded various illegal items. The entire site was filled with drugs, firearms, pornography, and other things you wouldn’t want to see in the light of day.

The court documents reveal that over the years, the value of the Bitcoins stolen from Silk Road by hackers has skyrocketed to over $3 billion. While investigators could trace the movements of these Bitcoins on the public blockchain, they couldn’t determine the true owners of these funds. So, they bided their time and patiently waited and observed how the hackers transferred funds between accounts and used so-called “mixers” to obscure the origin of the funds.

Finally, Chainalysis, a blockchain analysis company that had been tracking the stolen assets’ digital wallet, discovered a small mistake made by the hacker. They transferred around $800 worth of encrypted assets to a cryptocurrency exchange. This exchange followed established banking rules, requiring account holders to provide their real names and addresses to complete the required Know Your Customer (KYC) process.

The account was registered under the name Zhong. This transaction took place in September 2019, six months after Zhong reported the theft to the local police.

This alone wasn’t enough evidence to prove that Zhong was the hacker; investigators needed more proof.

So, the Internal Revenue Service (IRS) called the Athens-Clarke County Police Department for assistance. At the time, the investigation into Zhong had been at a standstill.

“I got a call from a special agent with the IRS,” Jody Thompson, Lieutenant in charge of the local Property and Financial Crimes unit, told CNBC. “And the special agent said, ‘Can I come talk to you about Jimmy?’ And I was like, ‘Sure, I remember that case.'”

Subsequently, Thompson teamed up with IRS Criminal Investigation agent Trevor McAleenan and another professional, Shaun MaGruder, the CEO of BlockTrace, a web intelligence company. BlockTrace specializes in solving complex blockchain transaction issues and was therefore able to work alongside the IRS.

The three investigators developed a plan together. In order to get close to Zhong, they set a trap, telling him they were investigating the Bitcoin theft case he had previously reported.

In reality, they were investigating Zhong for the crimes he was suspected of committing. The proceeds from this crime are now worth billions of dollars.

Based on exclusive law enforcement camera footage obtained by CNBC, when these three individuals knocked on the door of Zhong’s residence by the Gainesville Lake, Zhong warmly welcomed them in. He thought they were here to help him solve his cryptocurrency theft case.

“If you help me solve the case, I’ll take you out for a party,” Zhong said to the three of them in the recording from the law enforcement camera.

In the video, the detectives were very polite to Zhong. They complimented his front door as “beautiful,” said his sound system was “cool,” and even praised his dog Chad. The detectives also requested to tour Zhong’s house. The recording from the law enforcement camera showed the detectives gently tapping the stone floor, inspecting the closets, and examining the wooden paneling. Little did Zhong know, they were searching for a secret compartment in his house.

Zhong led the detectives to his basement, which had a complete bar and a dance pole.

“Is this for your workouts?” McAleenan asked Zhong.

“No, it’s for the girls to play with,” Zhong answered.

The recording from the law enforcement camera also showed the detectives carefully examining Zhong’s security system and asking him to explain each feature. In the video, Zhong also showed the detectives a metal box, claiming he had used it to store 1 million USD in cash in an attempt to impress a lady.

“Did it work?” Lieutenant Thompson asked.

“No,” Zhong said.

“That method never works,” Thompson added.

The law enforcement personnel learned that there were flamethrowers inside Zhong’s house. They also saw his AR-15 rifle hanging on the wall.

MaGruder stated that Zhong was a very savvy person.

“The speed at which he operates the keyboard is something I’ve never seen before,” MaGruder said, “he doesn’t need to use the mouse because he knows all the shortcuts.”

They took the opportunity to have Zhong open his laptop and explain how he acquired Bitcoin. Zhong sat on the couch, with the detectives next to him. When Zhong entered the password, he asked everyone else to turn away.

When Zhong opened the computer, the detectives could see his Bitcoin wallet.

“Look, he has tens of millions of dollars worth of Bitcoin right next to us,” MaGruder said in an interview with CNBC.

This evidence was enough to convince the detectives that they were in the right place. As they left Zhong’s lakeside residence, MaGruder told CNBC, “It’s just unbelievable. I felt like we found the suspect.”

MaGruder stated that their first encounter with Zhong gave the detectives the federal search warrant for Zhong’s residence. On November 9, 2021, McAleenan, MaGruder, and Thompson led a large group of officers back to Zhong’s residence.

Before the officers searched the house, McAleenan had to explain to Zhong that he wasn’t actually trying to help him, but rather convict him.

McAleenan said: “I told him, Jimmy, you know me, you know my name is ‘Trevor’. But actually, I am Trevor McAleenan, an investigator for the IRS criminal investigation. We are here to execute a federal search warrant on your house.”

“His expression at the time was like, ‘Am I being fooled?’ ” McAleenan added.

At that moment, another officer inserted a device called a “jiggler” into Zhong’s laptop, causing the cursor on the screen to continuously move, thereby allowing law enforcement officers to access encrypted content on the computer.

The officers rushed into Zhong’s home, rummaging through boxes and cabinets in search of evidence. McAleenan said they found a popcorn tin containing a computer in a closet upstairs. That computer held millions of dollars worth of Bitcoin.

McAleenan said that the police used trained sniffer dogs to detect electronic devices and discovered a safe buried in concrete beneath the basement floor. Court documents show that the safe contained precious metals, stacks of cash, and physical Bitcoin minted in the early days of cryptocurrency. In addition, the police found a wallet containing Bitcoin stolen during the 2012 hacking of the Silk Road website.

Zhong was arrested and brought to justice.

Recalling the moment, McAleenan said, “It was already late at night, and we could finally say that we succeeded. We found crucial evidence. The house lit up. I mean, every investigator at the scene was cheering.”

During further investigation, the investigators learned more about this unique Mr. Zhong. In the world of cryptocurrency, he was considered an “OG” – an Original Gangster, someone who entered the crypto sphere early on and gained respect as an elder statesman.

Investigators discovered that as early as 2009, the year Bitcoin was introduced, Zhong was one of the early developers dedicated to developing and improving this encryption technology. McAleenan said that compared to some other OG players who later became famous in the Bitcoin community, his contribution was relatively small. However, the conclusion reached by the investigators was that Zhong did indeed contribute to the original Bitcoin code and provided advice to early developers on critical issues such as scaling the blockchain.

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

McAleenan said, “He is what we call the ‘crypto guru’, aka OG, a big shot in the field of Bitcoin core development. He has been deeply involved in this field for a long time.”

The author of “Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money,” Nathaniel Popper, said that Zhong’s role in Bitcoin’s history has a certain irony, reflecting the culture that initially created the cryptocurrency.

Popper said in an interview with CNBC, “Everyone joins this field for their own reasons. Therefore, a diverse and eccentric group of people have gathered here.”

Popper said, “The history of Bitcoin’s development is always full of irony. Indeed, it is ironic that a bitcoin advocate stole bitcoins from another bitcoin supporter. But I think, to some extent, this is also part of what defines bitcoin.”

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

In the end, Zhong did not keep the bitcoins he stole. The U.S. government seized these assets. According to documents reviewed by CNBC, the U.S. government initiated the relevant procedures to allow “victims” to reclaim their stolen bitcoins.

But no one came forward to claim them. This is understandable, as the main users of the Silk Road website in 2012 were drug dealers and their customers. Therefore, the federal government sold the stolen bitcoins and kept the proceeds. According to the Internal Revenue Service Criminal Investigation division, some of the income may be used to reward local law enforcement for their assistance in this case.

On April 14, after the court’s verdict, CNBC attempted to interview Zhong as he was leaving the courthouse to ask about his role in the case. Zhong covered his head with a jacket and left without saying a word.

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

Zhong’s lawyer, Michael Bachner, said that this theft did not actually harm the U.S. government.

Bachner told CNBC, “Jimmy’s actions did not cause any losses to the government. If Jimmy hadn’t stolen these coins, the government would have confiscated them from Silk Road operator Ross Ulbricht. Then, in 2014, two years later, the government would have sold these seized bitcoins just like they did with other crypto assets.”

Bachner added, “The market value of Bitcoin in 2014 was $320. So, if the government had sold these bitcoins in that year, they would have made a profit of $14 million. But now, because Jimmy took these bitcoins, when the government sells them again, they will make a profit of $3 billion.”

Because of concerns about the life of his 13-year-old dog Chad, Zhong requested to be exempt from imprisonment. Bachner said that Zhong has had a difficult life. He has autism and has suffered severe bullying at school. Over the years, he has found solace in an online community where he can showcase his computer skills.

As for the beginning of this story, the Bitcoin theft case that occurred in Athens in March 2019 is still unresolved. The criminals are still at large.

Zhong’s dog, Chad, now lives with one of his friends.

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