Trevor McAleenan, Michael Lane

In 2012, Jimmy Zhong, a student at the University of Georgia, stole more than 50,000 bitcoin, a digital currency exchanged over decentralized peer-to-peer networks, from the Silk Road darknet marketplace, a shady hub of illicit drug sales.  

For years, the theft remained one of the largest cryptocurrency crimes in the world—that is, until two IRS criminal investigators, Trevor McAleenan and Michael Lane, helped crack the case.     

Working hand in hand, the two agents coordinated with crypto experts, used emerging technology and met with local authorities to launch a sophisticated investigation that exposed Zhong’s scheme and led to the forfeiture of more than 50,000 bitcoin, worth $3.3 billion—the second largest financial seizure ever made by the Department of Justice, when factoring in the dollar value of the cryptocurrency Zhong held.  

“This was a landmark case that led to the development of cryptocurrency tracing tools that are  novel in their use and showed criminals that they cannot hide their ill-gotten gains through cryptocurrency, no matter how long they waited to claim it or the method they use to conceal their funds,” said Michael Lee, supervisory special agent in the IRS criminal investigation division.  

A long and winding case  

It all began in 2012, when Zhong made initial bitcoin deposits in nine Silk Road accounts and then triggered more than 140 withdrawals in quick succession to trick the marketplace’s processing system into releasing more than 50,000 bitcoin. He then used various techniques to hide the location and ownership of the funds, including transferring some of the haul to overseas accounts and different cryptocurrency addresses. 

In 2018, years after Silk Road was raided and shuttered by authorities, Zhong began to liquidate his crypto stash, now worth billions, through legitimate financial institutions, believing he had gotten away with the perfect crime.  

But, in 2019, when Zhong discovered that some of his bitcoin had been stolen, he reported the crime to local police in Athens, Georgia, and eventually to a private investigator.   

It turned out to be a costly mistake.  

Catching a big break 

Little did Zhong know that the IRS had been investigating his crime for years, tipped off by missing funds from the blockchain, a public digital ledger where all bitcoin transactions are recorded without directly providing the identity of the parties involved.  

According to McAleenan, the team examined “tens of thousands of transactions” to trace the movement of those funds and unmask Zhong.  

He and Lane became experts on the Silk Road marketplace and how funds moved within it. They also worked with third parties to conduct forensic analyses of computer servers used to operate Silk Road, including user posts and messages, and blockchain records showing deposits and withdrawals with limited user information. 

When Zhong liquidated the funds into a legitimate account bearing his name, the team discovered they were tied to the Silk Road hack via transaction hashes, unique identifiers to a particular transaction on the bitcoin blockchain.  

This information, combined with the team’s other detective work, led McAleenan, Lane, local police and crypto experts to search Zhong’s residence under the guise of helping him recover his stolen funds. In truth, they were looking for the bitcoin he had stolen.  

“This case combined traditional hard-nosed detective work and technological innovations to follow the money,” said Tyler Hatcher, executive special agent in charge of the Los Angeles Field Office at the IRS Criminal Investigation Division.  

Eventually, McAleenan led a separate search of Zhong’s home that yielded an unusual cache of evidence, including bitcoin stashed in a single-board computer hidden in a large popcorn tin and a wallet with bitcoin from the original Silk Road hack in 2012.  

Zhong was charged with wire fraud in 2022 and his prison sentence began in 2023. 

Jarod Koopman, executive director of Cyber and Forensic Services at the IRS Criminal Investigation Division, called McAleenan and Lane a “super innovative team doing things I would venture to say are not being done anywhere else in government.” 

A lesson for cybercriminals, McAleenan said, is that time is not on their side. 

“This case gives the public an idea of how the IRS will continue to pursue a crime no matter when it was committed and how far back it goes,” Lane said.