Two Estonian citizens – Sergei Potapenko and Ivan Turõgin, have been arrested in Tallinn, Estonia, on Sunday in connection with 18-count indictment for alleged involvement in a $575 million cryptocurrency fraud and money laundering conspiracy.
The Daily Crucible gathered that the Estonian National Criminal Police and the United States’ Federal Bureau of Investigation (FBI) arrested two over $575 million crypto fraud and money laundering in a joint operation.
Specifically, the Cybercrime Bureau of the National Criminal Police and the FBI arrested Sergei Potapenko and Ivan Turõgin, yesterday as both are fraud and money laundering suspects, according to Department of Justice.
The indictment against was returned by a grand jury in the Western District of Washington on Oct. 27 and unsealed today, Monday,
Sergei Potapenko and Ivan Turõgin, both 37, allegedly defrauded hundreds of thousands of victims through a multi-faceted scheme. They induced victims to enter into fraudulent equipment rental contracts with the defendants’ cryptocurrency mining service called HashFlare.
They also caused victims to invest in a virtual currency bank called Polybius Bank. In reality, Polybius was never actually a bank, and never paid out the promised dividends. Victims paid more than $575 million to Potapenko and Turõgin’s companies.
Potapenko and Turõgin then used shell companies to launder the fraud proceeds and to purchase real estate and luxury cars.
“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,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division.
Also, U.S. Attorney Nick Brown for the Western District of Washington said, “The department is committed to preventing the public from losing more of their hard-earned money to these scams and will not allow these defendants, or others like them, to keep the fruits of their crimes.
“The size and scope of the alleged scheme is truly astounding. These defendants capitalized on both the allure of cryptocurrency, and the mystery surrounding cryptocurrency mining, to commit an enormous Ponzi scheme.”
According to Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division, “They (the accused) lured investors with false representations and then paid early investors off with money from those who invested later. They tried to hide their ill-gotten gain in Estonian properties, luxury cars, and bank accounts and virtual currency wallets around the world. U.S. and Estonian authorities are working to seize and restrain these assets and take the profit out of these crimes.
“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. The FBI thanks our national and international partners for their efforts throughout the investigation to help bring justice for the victims.”
According to the indictment, Potapenko and Turõgin claimed that HashFlare was a massive cryptocurrency mining operation. Cryptocurrency mining is the process of using computers to generate cryptocurrency, such as Bitcoin, for profit. Potapenk and Turõgin offered contracts which, for a fee, purported 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 enabled customers to see the amount of virtual currency their mining activity had supposedly generated. Customers from around the world, including western Washington, entered into more than $550 million worth of HashFlare contracts between 2015 and 2019.
According to the indictment, these contracts were fraudulent. HashFlare allegedly did not have the virtual currency mining equipment it claimed to have. HashFlare’s equipment allegedly performed Bitcoin mining at a rate of less than one percent of the computing power it purported to have. When investors asked to withdraw their mining proceeds, Potapenko and Turõgin were not able to pay the mined currency as promised. Instead, they either resisted making the payments, or paid off the investors using virtual currency the defendants had purchased on the open market—not currency they had mined. HashFlare closed its operations in 2019.
It was learnt that in May 2017, Potapenko and Turõgin offered investments in a company called Polybius, which they promised would form a bank specializing in virtual currency. They promised to pay investors dividends from Polybius’s profits. They allegedly raised at least $25 million in this scheme and transferred most of the money to other bank accounts and virtual currency wallets they controlled. Polybius never formed a bank or paid any dividends.
The indictment also charges Potapenko and Turõgin with conspiring to launder their criminal proceeds by using shell companies and phony contracts and invoices. The money laundering conspiracy allegedly involved at least 75 real properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.
Potapenko and Turõgin are both charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering. If convicted, Potapenko and Turõgin each face a maximum penalty of 20 years in prison. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.