How To Steal And Lose More Than $3 Billion In Bitcoin | CNBC Documentary

Jimmy, how are you feeling today after this? Jimmy, do you feel the judge was fair today? Why did you

steal

the money, Jimmy? A spectacular crime. This is going to be a huge case and there is a lot

more

money we don't know about, in a small town. Shocked. I was shocked. I was very surprised. A secret 28-year-old

bitcoin

billion

aire. His private jets, wild parties and dark secrets. It was just a surreal feeling. And with Jimmy there were no limits. This is the story of one of the biggest cryptocurrency thefts of all time. He lives this party monster lifestyle with no visible means of support.

Good. With clues dating back to the early days of Bitcoin itself, in a story that reveals a dark truth about the hackers and coders who created the cryptocurrency in the first place, a huge amount of

bitcoin

is leaking out of the system and you have no idea where is he going. It's a great question. And the man who might have gotten away with it, except for one phone call that abruptly ended a nearly decade-long manhunt. Clark County 911, what's your name, sir? I'm Jimmy Zhong, Z-H-O-N-G. There aren't many major crimes committed in Athens, Georgia. It is a college town that is home to the University of Georgia.

So they're used to college town type crimes, bar fights, break-ins, that kind of thing. Clark County 911 Line. Hey, I was away for the last week and someone broke into my house. And what is your name, sir? I'm Jimmy Zhong, Z-H-O-N-G. But this 911 call on the night of March 13, 2019 is something Athens has never seen before. On the phone is Jimmy Zhong, 28, a party animal University of Georgia graduate and former computer science student. He is reporting a massive theft of cryptocurrency from his modest off-campus bungalow. I'm having a panic attack. Do you need an ambulance? Zhong looks distraught and a lot of money is missing.

If he had an approximate amount to say the total value of the money? Probably c

lose

to $400,000. But Zhong has much

more

money than that. And with this phone call, he takes a big risk because he has a secret that he doesn't want the police to know. Still, he wants to know who robbed him. And when the police can't identify a suspect, Zhong calls in local private investigator Robin Martinelli to help him figure out who took all that money. He was very nice and kind and had a real problem, so he called me. Did he call you out of nowhere?

He did. Martinelli begins the investigation of him at the crime scene. So we could see that someone had come in through a window and had actually broken in. Zhong said the thief took $400,000 in cash and 150 bitcoins, which were then worth almost $600,000. He was hiding behind his fireplace. He was well hidden. And he kept saying over and over again that only a few friends and a few people knew that he kept money there. So you put his friends under surveillance? The majority, yes. We went to the bars, I think we went to some of the houses, spent a lot of time with Jimmy, checked out his house, did some social media research, did background checks.

But one question remains on his mind. What are you doing with so much cash? And I asked him again and again and he said that he had reversed it. It did not make sense. And before they hire me, I tell everyone that I'm married to a police officer. My girls are police officers. The private detective reviews tapes from Zhong's elaborate home video surveillance systems. We could see that we thought he was a man, somewhat thin, and the person knew exactly where to go, as if he was dodging where the camera might be. So you thought he might be a person who had been here before?

Correct. Yes. Maybe it's a friend of Jimmy's, someone who worked for him. For Martinelli, it seems that Zhong doesn't have many real friends besides his dog, Chad. So who are his friends? Who is he dating? I remember one woman, a couple of men about her age who were just no good at anything. Very casual, plastic, not caring much, maybe using Jimmy a little. Were they using it? I don't know if they really cared about Jimmy. Yes. Did he know? I don't think he knew or wanted to know. Jimmy wanted to be loved or Jimmy wanted friends.

Jimmy was a good guy. If we go back a few years, many people in Athens think that Zhong is a good guy. He is wasting a lot of money. In addition to his bungalow in Athens, he buys a house on nearby Lake Lanier. He buys a boat, jet skis and expensive cars. He was a few years older than us and loved to party. Stefana Masic goes to many of those parties. She met Zhong when he was a student at the University of Georgia. He would buy me and my friends drinks, and then there were also several occasions when he would buy drinks for everyone at the bars.

He would buy drinks for each person at the bar. Yeah. I mean, like 100 people? Yes, more or less. I remember he lent me some money that he needed and I never had the expectation that I would have to pay it back. When he was a friend, he was a very generous friend. I would say I really enjoyed having Jimmy as a friend in my life. In 2018, when Zhong's beloved Georgia Bulldogs arrive at the Rose Bowl, he gathers up his friends from the party, charters a private jet, and takes the whole gang to Los Angeles. We all flew privately and Jimmy rented a really nice Airbnb and also got everyone really nice tickets to the game.

He ended up giving everyone a budget and that was very unexpected, you know, just having a friend, giving money to all of his friends who went with him on the trip to buy items on Rodeo Drive. So it was like, am I dreaming? It was a very crazy moment. They told me it cost $10,000 each. Alright? Yes I think so. It was a number like that. So what did everyone buy? They all went to the Cartier store first and then bought a lot of handbags, belts, jewelry, coats and things like that. It was pretty wild. I mean, that doesn't happen every day.

More than a year after the Rodeo Drive shopping spree, Athens police are trying to find out who stole hundreds of thousands of dollars from Zhong's home. Lt. Jody Thompson of the Athens-Clarke County Police Department leads the local financial and property crimes unit. She says Zhong has an elaborate security system. Cameras bristle at the door and on the roof of his house. And whenever there is a crime, Zhong is happy to share video evidence with Athens police. So we would have robberies, we would have DUIs, we would have accidents. And Jimmy was always there to help them?

Always always. But Zhong also has a criminal record of his own, including a DUI and a bizarre incident a few years earlier. So Jimmy was at a restaurant talking to some girls, and he casually mentions that he has $30,000 in his house if they want to come back and have fun. $30,000 worth of cocaine? $30,000 worth of cocaine. Unfortunately for Jimmy, there was an off-duty police officer sitting in the restaurant one table over. It's just a bad time. It was really a bad time. Then, with a quick phone call, other officers arrived and arrested him, actually finding some drugs on him.

And for that he received a couple of felony charges. He then he is drunk and disorderly. He was arrested for possession of coca. He's bragging to girls in bars. I mean, the guy seems like his life was a little out of control. I think it was. I think Jimmy was always looking for more. He was looking for a friend. I think a lot of people took advantage of that. And I feel bad for him because he was very naive. Zhong says he spent a significant portion of his wealth on partying. It's true that Jimmy, I've talked to him several times since, probably spent about half a million dollars just on partying downtown.

Half a million dollars in bar bills? That's what he estimated. Yes. He said he spent a lot of money having a good time. He lives this party monster lifestyle with no visible means of support. Good. And he said that he just invested in bitcoins and made money and, you know. And you had no reason to doubt it? There is no reason to doubt it. But that changes when the police investigator receives a call from IRS agents. So this is the fall of 40,000 bitcoins as they came off the Silk Road. Across the country, a team of IRS criminal investigators specializing in cryptocurrency has spent years tracking the 2012 hack of a dark web criminal marketplace called The Silk Road.

Someone stole 50,000 bitcoins from drug dealers, arms dealers and pornographers who used that site. As the price of bitcoins skyrockets in the coming years, the value of that astonishing heist rises to more than $3

billion

. They asked me about the bitcoin and how much was there and if he talked about where he got it from or something. And I didn't really have the answers for him. But I said, let me email him and I'm sure Jimmy will meet with us. Zhong quickly agrees to meet with the officers and when they arrive at his lakefront home, Thompson's body camera is recording.

Hi jimmy. How are you? Hey, do you remember me? The agents delve into Zhong's strange world and learn more about who they are dealing with. I mean, I've always been a computer science guy. I've always been that kind of thing. In Athens, Georgia, someone stole hundreds of thousands of dollars in cryptocurrency from local partygoer Jimmy Zhong. But the investigators who investigated that crime receive an unexpected call from armed federal agents from the IRS. Typically, when dealing with larger law enforcement agencies, we don't ask many questions about their investigation. Thompson suddenly finds himself going to Zhong's house with two highly qualified cryptocurrency researchers, a federal agent, and a contractor working for the US government.

Hi Jimmy. My name is Trevor McAleenan and I am an IRS Criminal Investigation Special Agent. My name is Shaun MaGruder. I am the founder and CEO of BlockTrace. BlockTrace is a company that researches cryptocurrencies on the blockchain. The IRS hired MaGruder because of his experience untangling complicated transactions. He has been investigating a massive heist on a dark website called The Silk Road for years. Well, Silk Road is a unique marketplace where users can deposit bitcoins on this exchanger, so to speak, and where they can then buy goods, services, cocaine and weapons. All things bad guys. All things bad guys.

Good. And people thought it was a private transaction and they could get away with it. They thought that. So the beautiful thing about blockchain is that all transactions are preserved, going back to 2009 when Bitcoin was first launched. So all those criminals were completely wrong. It was not private. It wasn't private, was it? It was nothing private. In 2012, someone

steal

s 50,000 bitcoins from that criminal exchange and federal agents begin trying to find out who did it. A lead in the case doesn't arrive until six years later, when MaGruder finds a lead that points to Zhong. One of the special agents I worked with on the team calls me and says, Hey, Shaun, can you help me with this?

If you just check it out over the weekend. That would be great. And this was a Friday. On Monday I came back with a response and said, Hey, I think we might have something here. And then we noticed some activity that caught our attention. What was it? What was it? Big question. That is a good question. Are you allowed to say it? This is a kind of sensitive police technique. You can't talk about it publicly. Not that specific technique. But you realize there were some clues here you could follow. Good. Absolutely. And then Zhong makes a big mistake with a relatively small amount of money.

Zhong transfers about $800 in bitcoin to an exchange that has a policy called Know Your Customer, known as KYC. The policy requires anyone sending or purchasing cryptocurrency on the exchange to provide their name and identifying information. So after issuing a subpoena for that KYC exchange, we got a positive ID from Jimmy. Because of the subpoena, the exchange has to tell you the person's name. That's right. And he used his real name? He did. The investigators follow that trail of clues to Zhong's house, the three men devise a plan to go see Zhong, telling him that they are there to investigate the crime against him, never mentioning that they are also there to investigate something else.

A much bigger crime. And this never-before-seen police body camera video shows the moment in real time. Zhong, without hesitation, lets the investigators in. Hey, this is Trevor and Shaun. We went to the door under the premise that these two guys, Shaun and Trevor, would help me with the investigation to recover their bitcoin that was stolen. Yes, these guys are going to help me a little because we would get more cases, like the ones you have. Actually? You know, watching that tape, it's almost like he's desperate for someone to talk to. I think that might also be another side of Jimmy that no one really knew: the loneliness of being so rich and not having anyone to share it with.

And you walk in the door and start talking to him and here he opens up. He did. Have you solved this? I would invite you all to have abeer whenever they want. Alright. I continued to congratulate his house again. This is so beautiful. He talks about his dog. Beautiful dog. Anything we can do to keep him talking. And as he got more and more comfortable, I eventually asked Jimmy, show us around. Let's see the whole house. He will show us. Yes, let's see. There is an L-shaped sofa. There are sliding doors to the right. There is a television on the wall.

There is what appears to be some type of firearm above the sliding door, which we later learned was a flamethrower. Did you have a flamethrower in the house? He had a flamethrower. Are you making your own floors? What are you doing? That's a leftover. Is this the concrete slab? You do this job for a while and to begin with, you notice things in the houses and think there might be something hiding there. Were you looking for secret compartments as you walked through the house? Yes. It's simply part of the process. We went upstairs and headed to the room, the three of us with the Athens police and the IRS-CI.

We saw the AR-15 on the wall. Yeah, it looks beautiful, man. When you see the AR-15 in the house, do you feel like this guy could be dangerous? Yes of course. I mean, if you see an AR-15 with a magazine, hanging on the wall, in no way, locked or bolted down and ready to go, I mean it represents a security threat. Armed or not, they have to get Zhong to talk. Well. So I guess it's a personal question: how did you get the money? I don't even know what you do, Jimmy. I mean, these days I'm in real estate development.

I am the financing. Zhong shows investigators a suitcase he used to store $1 million in cash. That is the exact case. Is it a ZERO Halliburton or a Samsonite? It's a random Amazon case. You know, it was probably to impress this girl back then. I was like, impress me. You're impressing us. Let's try to take out a million dollars in cash and put it in this aluminum briefcase and so on. You know, I wanted to impress her back then. It worked? No. That never happens. She never does. We finally went downstairs and saw that they had a party venue built with a stripper pole in the middle and a full bar.

Is this your training? No. That's for the girls. Well. Nice. You don't see that very often. You don't see that very often. But behind that bar was another computer server room that he had built. So I ran CAT6 everywhere. Well, that was a good opportunity. That's great. That is incredible. Wow. Zhong is then asked about his history with bitcoin and Zhong reveals that his involvement with cryptocurrencies dates back to 2009, which is the same year Bitcoin was first launched. When did you first dive in? Hey? When did you first do it, like 2009? Investigators begin to see Zhong's level of sophistication.

This is so strange to me. Bitcoin mining chips. Oh, I'm just thinking about fries. I wasn't thinking. Oh. I mean, the individual chips have to be assembled into something. They continue investigating to get Zhong to explain his security system. It's like 30 seconds, the normal sirens sound. So, you did that in your... 40 seconds, that sounds like? Wow. And that will make your head throb. But most importantly, they have to get Zhong to open his laptop. Oh yes, many. Did they look the other way? Because this is going to be my password. Well. I'm just looking. It's like you're writing a sentence there.

Oh, wait, that's... that's why. So is this the equivalent of your hot wallet? Where you say you have, is this your play money? This is the hot wallet, it's the... and then the cold wallet is... I'm not going to tell you where it is. That's on camera. I don't even know... Oh, no... if that leaks into the apartment or something. No, I do not know. Investigators see the evidence they need when he opens the laptop. A wallet filled with a huge amount of bitcoins. So on the day of the video we see, you leave the house, the three of you leave, and we see him walk out into the driveway.

What are you thinking the moment you walk out that door? This is incredible. I think we found our boy. Jimmy, nice to meet you, man. No problem. After the tour of the house, the federal agents decide they have had enough. Evidence links Zhong to the 2012 Silk Road hack. Everything is about to fall apart for Zhong, and it's all because he called 911 to report that someone had stolen some of his stolen loot. If he hadn't done that, would he still be living large on private jets? I think he would do it. He has stolen assets worth $3 billion and calls the police to report a theft of only a fraction of that amount.

Who does that? Jimmy. As they delve deeper into Zhong's story, the agents begin to suspect that Zhong's abilities are proof that he is more than just a hacker. You don't have to answer. How OG are you? I don't have the vast majority of them anymore, but I mined at least 300,000. Wow. He left them all drinking in the center of Athens. Over the years, the value of Bitcoin stolen from the Silk Road dark website in 2012 has skyrocketed to $3.36 billion. Investigators searching for the hacker use a trick to break into Jimmy Zhong's home and force him to open his laptop.

But you don't even have a Bitcoin lying around? Oh, I mean, 1,500 on that laptop alone. Oh. When you're sitting next to him on the couch, open his laptop. What do you see on that screen? Lo and behold, he had $60 or $70 million worth of bitcoins right next to us. So, with one look at his laptop screen, you could instantly tell that this is a guy who is a credible suspect. He could have made it. That's how it is. There are no cameras on the day investigators returned to Zhong's home to execute a search warrant for the 50,000 stolen bitcoins.

But it is a huge police operation and one thing is critical to the success of the mission. They have to break into Zhong's laptop. When I did the search warrant briefings with all the agents in the Atlanta field office, it's hard to say, Hey, tomorrow we're going to raid someone's house. Multiple locations. Oh, by the way, you may or may not be familiar with Bitcoin and cryptocurrencies, but there's a chance that this person has about $3 billion in cryptocurrencies, 50,000 bitcoins, and you're like, Is this this guy? from another planet? We met in a parking lot where I saw a lot of law enforcement and I thought, Oh, okay, I see what we're doing now.

Today we are going to do a search warrant. After rehearsing what the search warrant would look like, myself, the original Athens police detective, and two special agents visited Jimmy. They tell Zhong that to help him with his stolen bitcoin case, they needed to verify the information on his computer. So you walk in and still under the pretext that you are there to help him. That's how it is. I brought Chad a dog toy to play with to keep him calm and make sure he was out of danger. And we entered Jimmy's house. McAleenan is about to finally tell Zhong the truth.

Investigators are not there to help solve the crime against you. They are there to search his house for evidence of the $3 billion theft. We started doing our thing, going over the transactions, you know, getting him to open his computer. So you have to have that computer open, unlocked, passwords entered, and then Jimmy physically away from it so you can grab it before it locks itself. That was the goal. And I start to draw Jimmy's attention away from his laptop. I asked if we could take a look at his back balcony over the lake. Then he asked Zhong to cross the room and help open the sticky sliding glass door.

Jimmy got up, started walking towards the sliding glass and my co-case stuck what's called a jiggler on the computer, which makes the mouse move around the screen so it doesn't crash. We left my co-case and went out to the patio with us, and just like the circumstances in the movies, you know, Jimmy sitting on the back porch, we thought, Oh, this is an incredible view. And Jimmy is looking at me. And I said, Jimmy, you know me as Trevor. I'm actually Trevor Macklin and an IRS Criminal Investigation Special Agent. And we're here to execute a federal warrant passed on his house.

And he seemed like I was being fooled. Good. That's where, literally, at the time of the movie, the search warrant team arrived at the house. They knocked, they knocked on the door. The police with a warrant invaded the house and you could see that panic was beginning to take over his mind. So that's the first moment where everything changed for him. Yes. And you were able to take advantage of that minute when he was away from the computer to grab it and keep it open. Yes. The agents searched the house for evidence. Zhong's neighbor, Walt Frayser, was there the day it happened.

I – I didn't know what to think. I mean, I've never seen so many police officers anywhere in my life. And then everyone in my front yard and I said, Holy cow. Upstairs in the bathroom cabinet, on the side of the ceiling, there was, in fact, a can of popcorn. And in that popcorn can were some towels, which begins to dry up your interest in why you would own a popcorn can with towels in it. Then one of the searchers began to separate the different towels and found the single board computer. Later, we were able to discern with Jimmy's help that he owned a ton of bitcoins, millions of dollars.

Millions of dollars. Using a dog specifically trained to sniff out computer hardware, they find a safe buried in concrete under some basement tiles. In that safe we ​​found bitcoin, we found a wallet that had the addresses previously associated with the 50,000. They also find physical bitcoins that were minted in the early years of cryptocurrencies, precious metals, and ancient paper money. On November 9, very late at night, we could say that we were successful. We found the evidence we were looking for and the house lit up. I mean, all the agents present applauded. After the cheering dies down. Investigators also realize that Zhng was more than just an ordinary criminal hacker.

The IRS concluded that Zhong was what is known as a bitcoin OG, slang for original gangster, one of the early developers who fueled the rise of cryptocurrencies. He then he contributed to the code. He would constantly offer suggestions on how to improve it. But Zhong said it wasn't his coding skills that allowed him to steal the Silk Road bitcoin. In his guilty plea, Zhong said he stumbled upon the defect accidentally. In his statement, Jimmy says that the way he stole these bitcoins was by withdrawing some assets from Silk Road. He had been using it to buy cocaine and realized that if he simply double-clicked, he could withdraw more than he had put in.

Is that what happened? What if he just double-clicked the withdraw button? We don't know the answer to that question. I mean, that seems awfully simple. Yes, but what gets a little more complicated is that we were able to discern from the nicknames Jimmy had used, that he knew exactly how much was in the Silk Road hot wallet in September 2012. So in that case, he knew that when he stole 50,000 bitcoins from the Silk Road, he knew exactly what the maximum he could get away with was. And he reached that maximum. Yes. Zhong says that his skills also impressed someone else.

Ross Ulbricht, the man who created the Silk Road site that attacked Zhong. Online, Ulbricht called himself Dread Pirate Roberts, and according to Zhong, Ulbricht agreed to simply give Zhong the bitcoins he stole, plus 5,000 more as a reward. Jimmy and the fearsome pirate Roberts were in contact. Good? That's what Jimmy claims. We could not find any evidence to support that position. Why would Dread Pirate Roberts pay Jimmy a reward for stealing from Dread Pirate Roberts? That doesn't make any sense to me. We understood that was in response to helping you fix an error with Silk Road's payment processing system.

So the idea is that Jimmy exposed a flaw and exploited it to steal the money. And then he sold that flaw to the fearsome pirate Roberts and said: I'll explain to you how I did it if you let me keep the money? Yes. Court documents claim that after the attack, Zhong used "sophisticated laundering" techniques to use stolen bitcoins for lavish trips and real estate investments. So he took advantage of the bitcoin mixing services that existed that mixed his transactions with other people's and then came out the other end, right? Where they would be clean, so to speak.

However, in the end, Zhong couldn't keep the money. After the US government seized the assets, victims had the opportunity to come forward and claim their bitcoins, but no one did. Which is not surprising given that the Silk Road was an exchange for criminal activity and the feds sold Zhong's bitcoins. Tyler Hatcher is the special agent in charge of the local office ofIRS Criminal Investigation in Los Angeles. So, Jimmy stole the money, but the US government will keep it? Correct. There's some irony there, right? There is some irony there. Yes. When you think about this case, there was a hacker stealing on the Silk Road and the Silk Road customers were horrible people, right?

I mean, there were drug dealers, gun dealers and all kinds of bad guys there. The victim here is another group of criminals, so it's hard to feel sympathy for anyone involved in that case. How do you approach a case like that? You know, there's a saying that there's no honor among thieves, right? So when we talk about illicit funds that exist, the last thing we want is for a criminal to be able to spend them. Good? That's why we have jobs. That's why we look for these opportunities. Hatcher says some of that amount will likely make its way to the local Athens Police Department.

The government certainly hasn't been harmed at all by Jimmy's conduct. Michael Bachner is Zhong's attorney in this case. If Jimmy had not stolen the coins and the government had, in fact, confiscated them from Ulbricht, they would have sold them two years later in 2014, as they did with other coins, and would have made $320 per coin or made about $14 million of dollars. . Now, as a result of Jimmy having them, the government has made a profit of 3 billion dollars. Bachner says that at the time Zhong stole the coins, he did not believe he was committing a federal crime. Bitcoin, back then, was a lot like the Wild West.

Coins were sometimes worthless or had such a fluctuating value. At sentencing, Buckner described the abuse Zhong faced from the other children at school. He is on the autism spectrum. He was subject to constant and constant abuse, which included being randomly punched in the face for no reason. He would go to school, he would do very well in school because he was very smart, and then he would go home, lock himself in his room, or go to his room and be on his computer. Nathaniel Popper is the author of Digital Gold, which tells the story of bitcoin.

He says a hacker culture ran through the first bitcoin community. You have to see if you can break the system to find out how it doesn't work. So when the system failed, it was seen as an opportunity to learn from it and figure out how we can strengthen it for the future. If we want this to work long term, we need to fix the small leaks in it. There is a strange way in Bitcoin history where everyone who played a major role is a villain and a hero at the same time. And that conflict, that tension is there on the Silk Road.

And I think it's there in Jimmy's story too. Zhong pleaded guilty to one count of wire fraud. No friends or family were present at Zhong's sentencing, but he received a half-dozen letters of support from friends, one of whom said: My heart goes out to Jimmy because all he wants in this life is to love others and for them. others love him. . In a tearful statement, Zhong said bitcoin made him feel important and valuable and asked not to be imprisoned so he could take care of his c

lose

st friend, his dog, Chad. Chad and Jimmy have a very close, loving relationship.

Chad is now 13 and sick, he has a feeding tube and Jimmy spends time and effort caring for him. I think he was stuck. He, as far as I know, did not speak to his family. So I don't know anyone he's been close with except his dog, Chad. His dog. If that is all. Yes, his dog Chad. I think he just wanted to have a lot of fun and maybe get smarter by having a traditional life. On April 14, the verdict was issued. We waited outside the courtroom during Zhong's two hours of sentencing. Here it comes. Here it comes.

In which he received a year and a day in prison for his role in the Silk Road hack. Jimmy, how are you feeling today after this? Why did you steal the money, Jimmy? Did you think you were going to get your way? Anything else to say, Jimmy?