Bitcoin developer Jimmy Zhong declassified his two-faced life

Compiled: BitpushNews Yanan; Source: CNBC

Athens, Georgia, is home to the University of Georgia, where police have become familiar with common types of crime in college towns, such as burglaries, bar fights and riots.

But on the evening of March 13, 2019, the local police received a call from the other.

The caller was 28-year-old Jimmy Zhong, a frequented bar local and University of Georgia alumnus. In addition to loving parties, he is a computer expert with advanced digital surveillance systems installed in his home.

At the time, the Jimmy Zhong reported to the police that he had hundreds of thousands of dollars in cryptocurrency stolen from his home. The thought of the lost money made Zhong's heart ache.

According to the recording obtained by CNBC, Zhong said to the operator at the time: "I had a panic attack. ”

Zhong rejected the operator's offer to call an ambulance and began trying to explain: "I'm an investor in Bitcoin. Bitcoin is an online, internet-based novelty. ”

No one expected that the call would involve a nearly decade-long tracking war that revealed a major crime in the crypto era and led to the second-largest cryptocurrency seizure in DOJ history, but it was set last February with $4 billion in bitcoin seized in the 2016 Bitfinex hack. ）

That night, Zhong's phone led investigators down a hidden path to Bitcoin's early days. A world where the boundaries between heroes and villains are blurred, slowly unveiled.

All this will be beyond Zhong's imagination.

When local police dealt with Zhong's theft, they did not find the suspect. For cryptocurrency-related cases, the police apparently lack experience in handling them, so the investigation of the case is slow.

So Zhong decided to enlist the help of Robin Martinelli, a local private investigator. The private investigator runs his own investigative firm in Loganville, Georgia.

Martinelli, a former police officer turned detective, is not an expert in the cryptocurrency space, but she has extensive experience dealing with extramarital affairs and custody issues. Her company even appeared on "The Montel Williams Show," a popular American television talk show focused on social livelihood, which was discontinued in 2008.

Although Martinelli underwent amputation due to illness, she was determined to help Zhong find out the truth.

"When you wake up and you can't put your feet on the ground, but you still need to manage the company, you have to go to work and make a difference." Martinelli told reporters in CNBC's new documentary, "Crypto 911: Exposing a Bitcoin Billionaire."

She first reviewed surveillance footage from Zhong's home. While reviewing the video from the night of the crime, Martinelli spotted a thin male figure.

"We could see him wearing a gray hat and then he was wearing a black ski mask." Martinelli said.

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

Martinelli said she would spy on Zhong's friends, following them to his home and downtown bars on Broad Street and College Avenue. The detective installed trackers on the subjects' cars, scrutinized their social media and conducted background checks.

As she observed the friends Zhong had made at the bar, Martinelli seemed to complain about the group. She described the alleged group of friends as "very casual, pretentious, insincere, and possibly a bit of Jimmy." ”

Martinelli said that as her investigation gradually focused on Zhong's circle of friends, Zhong seemed resistant to her reasoning. Martinelli eventually locked down a suspect she believed had stolen 150 bitcoins from Jimmy. At the time, the market cap of these bitcoins was close to $600,000.

But when she offered her opinion to Zhong, he didn't want to hear it.

"Whenever I mention that someone in his circle knows where the money is, he gets angry." Martinelli said. She also understands that Zhong will be saddened by the betrayal of him by someone close to him.

"Jimmy wants to be loved," she said, "and he wants friends." ”

Despite Martinelli's disappointment with Zhong's group of friends, she grew fond of her client. She felt that Zhong was a strange, longing for friends.

"Jimmy is a good guy." She said.

Not only this private investigator, but many people in the local area will feel similar to Zhong.

In the years leading up to the theft, Zhong was known for his outspokenness in town. He's the kind of guy who pays for an entire bar, and a few hundred dollars of drinks is nothing to him.

According to court documents reviewed by CNBC, although Zhong lived in a small, humble off-campus house near student housing and a university bar downtown, he also frequented luxury hotels such as Ritz Carlton, Plaza Hotel and Waldorf, as well as shopping at upscale stores such as Louis Vuitton, Gucci and Jimmy Choo. Luxury cars such as Tesla are also his standard. In addition, he bought a second home in Gainesville, Georgia—a lakeside villa with a marina, not far from Athens. There are also jet skis, boats, strip poles and lots and lots and lots of alcohol.

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His life is indeed "legendary".

With an apparent lack of a source of income, Zhong lived a life of luxury. According to people around him, he actually has no formal job. He told friends that he was exposed to bitcoin early on, and that he mined thousands of bitcoins when the crypto project was just emerging. Zhong announced that he began dabbling in cryptocurrencies as early as 2009. And that year was the first year of Bitcoin's introduction.

Whatever Zhong's profession is, one thing is certain: he made a lot of money and spent a lot of money.

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

"With Jimmy, you feel like he's omnipotent." University of Georgia graduate Stefana Masic told CNBC. She also took part in that trip.

Masic said Zhong not only paid for everyone's tickets, but also chartered a private jet. He also generously offered each friend $10,000 to go on a shopping spree on Rodeo Drive in Beverly Hills. The group spent the money on clothes, accessories and jewelry to wear into the city.

"I've never flown in a private jet before or stayed in such a good Airbnb. It's cool because, you know, I've experienced a lot of things that I wouldn't normally experience. ”

While he was cheering on his team in Los Angeles, Zhong had no way of knowing that a group of detectives from the IRS's Criminal Investigation Unit, led by officials in the city, were painstakingly investigating a crime from years ago.

According to court documents reviewed by CNBC, what caught the attention of investigators was a hacking in 2012 in which 50,000 bitcoins were stolen from a darknet website called Silk Road. The site was one of the first cryptocurrency marketplaces where anonymous buyers and sellers traded various illegal items. The entire site is full of drugs, guns, pornography, and other shady stuff.

The value of bitcoin stolen by hackers from Silk Road sites has soared to more than $3 billion over the years, according to court documents. While investigators can trace the bitcoins on a public blockchain, they have not been able to determine the true owners of the funds. So they chose to wait and see, patiently waiting and watching for years how hackers transfer funds between accounts and use so-called "mixers" to disguise the origin of the funds.

Finally, Chainalysis, a blockchain analytics company that had been tracking down digital wallets containing Silk Road's stolen assets, discovered that the hacker made a small mistake – he/she transferred about $800 worth of crypto assets to a cryptocurrency exchange. The exchange follows established banking rules where account holders are required to provide their real names and addresses to complete the required KYC (Know Your Customer) process.

The account was registered in Zhong's name. The transfer took place in September 2019, six months after Zhong alerted the local police.

That alone is not enough to prove that Zhong is a hacker, investigators need more evidence.

So the IRS called the Athens-Clarke County Police Department for help. At the time, the police investigation into Zhong had been stalled.

"I got a call from an IRS agent," Lt. Jody Thompson, director of the local property and financial crime unit, told CNBC, "and the agent said, can I come and talk to you about Jimmy?" I thought, of course, I remember this case. ”

Thompson teamed up with IRS Criminal Investigations Agent Trevor McAleenan and another professional, Shaun MaGruder, to form the Detective Team. Shaun MaGruder is the CEO of a cyber intelligence company called BlockTrace. The intelligence firm is very good at solving complex blockchain transaction problems, which is why it is able to work with the IRS.

The three investigators said they worked together to develop a plan. To get close to Zhong, they set a trap and told him that they were investigating the bitcoin theft he had previously called the police.

In fact, they are investigating Zhong's alleged crimes. This proceeds of crime are now worth billions of dollars.

According to law enforcement camera footage obtained exclusively by CNBC, when the three knocked on the door of Zhong's lakeside residence in Gainesville, Zhong warmly opened the door to greet him. He thought the three were here to help solve his cryptocurrency theft case.

"If you help me solve the case, I'll invite you out to a party." Zhong said to the trio in a video recording from a law enforcement camera.

In the video, the agents are very polite to Zhong. They praised his front door as "pretty," said his stereo was "cool" and praised his dog, Chad. The agents also asked to visit Zhong's house. Footage from law enforcement cameras showed agents tapping on the stone floor, inspecting closets and checking wooden paneling. Unbeknownst to Zhong, they were looking for the house's secret compartment.

Zhong led the detectives to his basement, which was equipped with a full bar and a dance pole.

"Is this what you use to exercise?" McAleenan asked Zhong.

"No, that's for girls." Zhong replied.

The footage from the law enforcement cameras also showed agents taking a closer look at Zhong's security system and asking him to explain each function. In the video, Zhong also shows agents a metal box that he says he used to store $1 million in cash in an attempt to impress a woman.

"Is it useful?" Lieutenant Thompson asked.

"Nope." Zhong said.

"It's never going to work." Thompson answered.

Law enforcement officers learned that Zhong's house had flamethrowers. They also saw his AR-15 rifle hanging from the wall.

MaGruder says Zhong is a very shrewd and sophisticated person.

"He operates the keyboard at a speed I've never seen before," says MaGruder, "and he doesn't need to use a mouse because he knows all the shortcuts." ”

They took the opportunity to ask Zhong to open his laptop and explain how he obtained the bitcoins. Zhong sat on the couch next to the detective. As Zhong entered the password, he asked the others to turn around.

When Zhong turned on the computer, the agent could see his bitcoin wallet.

"Look, he has six or seventy million dollars worth of bitcoins, right next to us." MaGruder said in an interview with CNBC.

The evidence was enough to convince agents that they were in the right place. Leaving Zhong's lakeside home, MaGruder told CNBC that he thought, "This is incredible. I think we found the suspect. ”

MaGruder said the first contact with Zhong allowed agents to obtain a 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 can search the house, McAleenan must explain to Zhong that he didn't really want to help him, he wanted to convict him.

McAleenan said, "I told him, Jimmy, you know me, you know my name 'Trevor,'" McAleenan said. But I'm actually Trevor McAleenan, an IRS criminal investigator. We are here to execute a federal search warrant on your house. ”

"His expression was like, 'Am I being tricked?' McAleenan added.

At that moment, another officer plugged a device known as "jiggler" into Zhong's laptop, causing the cursor on the screen to move constantly, giving law enforcement officers access to encrypted content in the computer.

Police officers burst into Zhong's home, rummaging through cabinets for evidence. McAleenan said that in an upstairs closet, they found a popcorn jar with a computer in it. That computer contained millions of dollars worth of Bitcoin.

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

Zhong was captured.

McAleenan recalls, "It was late at night and we were finally able to say we had succeeded. We found key evidence. The house lit up. I mean, every agent on the scene was cheering. ”

In further investigation, the investigators learned more about this particular Mr. Zhong. In crypto, he is known as the "OG" — Original Gangster, a veteran who entered crypto early and gained respect.

Investigators found that back in 2009, the year Bitcoin was introduced, Zhong was one of a small group of early developers working to develop and perfect the cryptography. McAleenan said his contribution was relatively small compared to some other OG players who later became famous in the Bitcoin community. But investigators ultimately concluded that Zhong did contribute to Bitcoin's original code and made recommendations to early developers on key issues such as how to scale down the blockchain.

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

McAleenan said: "He is what we call the 'crypto father', or OG for short, and can be seen as a big guy involved in the development of Bitcoin Core. He has been in this field for a long time. ”

"Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money." Nathaniel Popper, the author of the book, said that Zhong's role in Bitcoin's history has a certain irony, which also reflects the culture that created cryptocurrencies in the first place.

In an interview with CNBC, Popper said: "Everyone joins the field for their own reasons. Therefore, a group of extremely diverse and eccentric people gathers here. ”

Popper said: "The history of Bitcoin is always full of irony. Indeed, it is ironic that one Bitcoin advocate stole Bitcoin from another Bitcoin backer. But I think that's also part of Bitcoin's definition in a way. ”

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

In the end, Zhong did not keep the bitcoins he had stolen. The U.S. government seized the assets. According to a document reviewed by CNBC, the U.S. government initiated procedures to allow "victims" to apply for the recovery of their stolen bitcoins.

But no one came to claim it. This is also understandable, since in 2012 the users of the Silk Road website were mainly drug traffickers and their customers. As a result, the federal government sold the stolen bitcoin and kept the proceeds. According to the IRS-CI, a portion of the revenue may be used to reward local police for their help in the case.

On April 14, after the court sentencing, CNBC tried to interview Zhong, who was leaving the courtroom, about his role in the case. Zhong covered his head with his coat and left without saying a word.

Speaking to the judge before sentencing, Zhong said owning billions of stolen bitcoins made him feel important.

Zhong's lawyer, Michael Bachner, said the theft did not actually cause damage to the U.S. government.

Bachner told CNBC: "Jimmy's actions have not caused any damage to the government. If Jimmy hadn't stolen the coins, the government would have confiscated them from Silk Road operator Ross Ulbricht. Then two years later, in 2014, the government will sell these confiscated bitcoins like any other crypto asset. ”

Bachner added: "Bitcoin's market value in 2014 was $320. So, if the government had sold those bitcoins that year, they would have made $14 million. But now, because Jimmy took the bitcoins, the government would have a profit of $3 billion when they sold them again. ”

Fearing for the life of his 13-year-old dog, Chad, Zhong asked for exemption from jail time. Bachner says Zhong has had a difficult life. He has autism and is heavily bullied at school. Over the years, he found solace in an online community where he could put his computer skills to work.

As for the beginning of this story, the Bitcoin theft case that took place in Athens in March 2019, it remains unsolved. The perpetrators remain at large.

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