Two Estonian citizens have been detained in Tallinn over alleged involvement in a $575 million cryptocurrency fraud and money laundering scheme.
Reportedly the two citizens named Sergei Potapenko and Ivan Turõgin assertedly swindled hundreds of thousands of victims through a multi-faceted scheme. They both founded a scammy cryptocurrency mining service called HashFlare and lured victims to enter into fraudulent equipment rental contracts.
They also persuaded victims to invest in a virtual currency bank called Polybius Bank – a project which was initially never a bank and never paid out the promised dividends. Both of these projects, HashFlare and Polybius Bank, caused Victims to pay a total amount of over $575 million to Potapenko and Turõgin’s companies. Potapenko and Turõgin then used the shell companies to launder the fraudulent earnings to purchase real estate and luxury cars.
The Scheme Used In The Indictment
As reported, Potapenko and Turõgin claimed that HashFlare was a massive cryptocurrency mining operation. The mining service offered contracts that, for a fee, claimed to allow customers to rent a percentage of HashFlare’s mining operations in exchange for the virtual currency produced by their portion of the operation.
HashFlare’s website allowed customers to view the amount of virtual currency their mining activity had supposedly generated. These services, therefore, were a scam. HashFlare allegedly never had the virtual currency mining equipment it claimed to have.
The equipment HashFlare used was only able to perform Bitcoin mining at a rate of less than one percent of the computing power it was supposed to have. Whenever investors requested to withdraw their mining earnings, Potapenko and Turõgin didn’t usually comply. Instead of paying, they would avoid making the payments or paying the investors in a virtual currency purchased on the open market and not the virtual currency in which they had mined.
Reportedly, HashFlare closed its operations in 2019. However, before the closing, Hashflare had Customers from around the world, including western Washington, who has participated in over $500 million worth of HashFlare contracts between 2015 and 2019.
Officials’ Statement on the Indictment
The Potapenko and Turõgin fraud case involved a number of officials from the U.S, Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division commented on the issue, saying, “New technology has made it easier for bad actors to take advantage of innocent victims – both in the U.S. and abroad – in increasingly complex scams.”
Another U.S. Attorney for the Western District of Washington, Nick Brown, appeared to be offended by the case and noted, “The size and scope of the alleged scheme are truly astounding. These defendants capitalized on both the allure of cryptocurrency and the mystery surrounding cryptocurrency mining to commit an enormous Ponzi scheme.”
Nick added, “They tried to hide their ill-gotten gain in Estonian properties, luxury cars, bank accounts, and virtual currency wallets worldwide. U.S. and Estonian authorities are working to seize and restrain these assets and take the profit out of these crimes.”
Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division also stated that the ‘’FBI is committed to pursuing subjects across international boundaries who are utilizing increasingly complex schemes to defraud investors.’’
“Victims in the U.S. and abroad invested into what they believed were sophisticated virtual asset ventures, but it was all part of a fraudulent scheme, and thousands of victims were harmed as a result,” said Quesada.
Other Charges Against Potapenko and Turõgin
Some other charges Potapenko and Turõgin were involved in include laundering their criminal proceeds by using shell companies and phony contracts and invoices. The money laundering act was reportedly intricate in at least 75 fundamental properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.
Notably, Potapenko and Turõgin are both charged with the act of committing wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering.
Should Potapenko and Turõgin be declared guilty in court, they are said to face a maximum penalty of 20 years in prison each. A federal district court judge will dictate any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
Both the Cybercrime Bureau of the National Criminal Police of the Estonian Police and the Border Guard are involved in the investigation of the case. The U.S. The Department of Justice’s Office of International Affairs has also provided comprehensive assistance to the investigation, according to a report.
In relation to crypto scams, The Federal Bureau of Investigation (FBI) has recently warned about ‘Pig Butchering’ crypto scams among investors. In the announcement, the FBI advises individuals to Verify the validity of any investment opportunity, be on the lookout for misspelled URLs and domain names impersonating financial institutions, especially cryptocurrency exchanges and not download any apps until the legitimacy is verified.