Two Arrested in Massive Cryptocurrency Fraud, Money Laundering Scheme
The alleged masterminds of a $575 million cryptocurrency fraud and money laundering scheme are now facing charges, according to a Department of Justice (DOJ) press release.
The two Estonian citizens were arrested in Tallinn, Estonia on Nov. 21, 2022, and charged in an 18-count indictment by a grand jury in the Western District of Washington.
37-year-old Sergei Potapenko and 37-year-old Ivan Turogin are accused of defrauding “hundreds of thousands of victims through a multi-faceted scheme.”
U.S. Attorney Nick Brown of the Western District of Washington said, “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.”
Court documents say that Potapenko and Turogin allegedly induced victims to pay for contracts in a cryptocurrency mining company called HashFlare, which would “allow customers to rent a percentage of HashFlare’s mining operations.”
The indictment claims that customers from around the world “entered into more than $550 million worth of HashFlare contracts between 2015 and 2019.”
However, the indictment claims that the contracts were fraudulent and that HashFlare did not have the virtual currency mining equipment it claimed to possess.
According to U.S. Attorney Brown, “They lured investors with false representations and then paid early investors off with money from those invested later.”
The indictment says that Potapenko and Turogin then offered investments in Polybius, an alleged bank that specialized in virtual currency. Documents say that the defendants “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.”
In addition, the defendants are charged with “conspiring to launder their criminal proceeds by using shell companies and phony contracts and invoices,” which involved “at least 75 real properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.”
Authorities in the U.S. and Estonia are currently working to seize the assets connected with the case.
The DOJ lauded efforts between U.S. and Estonian law enforcement officials, calling Estonia “a crucial ally to disrupt this cyber-enabled crime.”
Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division said, “The FBI thanks our national and international partners for their efforts throughout the investigation to help bring justice for the victims.”