The US Justice Department announced on Monday that two Estonian citizens have been arrested on an 18-count indictment in Tallinn, Estonia, for their alleged involvement in a $575 million cryptocurrency fraud and money laundering conspiracy.
Two Estonian Citizens Arrested in $575 Million Cryptocurrency Fraud and Money Laundering Schemehttps://t.co/PLdyf6JSEC
— Criminal Division (@DOJCrimDiv) November 21, 2022
In a multifaceted conspiracy, Sergei Potapenko and Ivan Turgin, both 37, allegedly defrauded hundreds of thousands of victims by convincing them to enter fraudulent equipment leasing contracts with the defendants’ HashFlare cryptocurrency mining service. Also, they convinced victims to invest in Polybius Bank, a virtual currency bank. Polybius was never a bank and never made the dividend payments that were promised.
The victims paid over $575 million to the companies owned by Potapenko and Turygin. The two defendants are accused of laundering the proceeds of their scams through a series of shell companies while spending investor funds on expensive cars and Estonian real estate.
Their first company, HashCoins, debuted in December 2013 and claimed to be a manufacturer of cryptocurrency mining equipment, taking orders from clients looking to purchase mining equipment. However, the indictment claims that HashCoins never produced anything, instead reselling mining equipment purchased on the open market and looking for excuses to postpone the shipment of the majority of its purchases.
HashFlare, their second company, was a cloud mining company founded in 2015 with the intention of allowing users to lease the company’s hashing power in order to mine cryptocurrencies and receive an equal share of the company’s profits.
According to reports, Potapenko and Turogin launched Polybius Bank, a business that advertised itself as an Estonian-based cryptocurrency bank. The two publicized an initial coin offering (ICO) for the company in June 2017, the indictment claims, and gathered $25 million from investors all across the world as a result. It failed shortly after that.
U.S. Attorney Nick Brown for the Western District of Washington said in a statement:
“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 “
“They 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.”
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