Two Estonian Citizens Arrested in $575 Million Cryptocurrency Fraud and Money Laundering Scheme

Two Estonian residents have been arrested in Tallinn, Estonia, yesterday on an 18-count indictment for his or her alleged involvement in a $575 million cryptocurrency fraud and cash laundering conspiracy.

The indictment was returned by a grand jury within the Western District of Washington on Oct. 27 and unsealed right this moment.

In keeping with courtroom paperwork, Sergei Potapenko and Ivan Turõgin, each 37, allegedly defrauded a whole bunch of hundreds of victims by way of a multi-faceted scheme. They induced victims to enter into fraudulent gear rental contracts with the defendants’ cryptocurrency mining service known as HashFlare. Additionally they induced victims to spend money on a digital forex financial institution known as Polybius Financial institution. In actuality, Polybius was by no means truly a financial institution, and by no means paid out the promised dividends. Victims paid greater than $575 million to Potapenko and Turõgin’s corporations. Potapenko and Turõgin then used shell corporations to launder the fraud proceeds and to buy actual property and luxurious automobiles.

“New know-how has made it simpler for dangerous actors to reap the benefits of harmless victims – each within the U.S. and overseas – in more and more advanced scams,” stated Assistant Legal professional Basic Kenneth A. Well mannered, Jr. of the Justice Division’s Felony Division. “The division is dedicated to stopping the general public from dropping extra of their hard-earned cash to those scams and won’t enable these defendants, or others like them, to maintain the fruits of their crimes.”

“The dimensions and scope of the alleged scheme is actually astounding. These defendants capitalized on each the attract of cryptocurrency, and the thriller surrounding cryptocurrency mining, to commit an unlimited Ponzi scheme,” stated U.S. Legal professional Nick Brown for the Western District of Washington. “They lured buyers with false representations after which paid early buyers off with cash from those that invested later. They tried to cover their ill-gotten acquire in Estonian properties, luxurious automobiles, and financial institution accounts and digital forex wallets world wide. U.S. and Estonian authorities are working to grab and restrain these belongings and take the revenue out of those crimes.”

“The FBI is dedicated to pursuing topics throughout worldwide boundaries who’re using more and more advanced schemes to defraud buyers,” stated Assistant Director Luis Quesada of the FBI’s Felony Investigative Division. “Victims within the U.S. and overseas invested into what they believed have been refined digital asset ventures, but it surely was all a part of a fraudulent scheme and hundreds of victims have been harmed in consequence. The FBI thanks our nationwide and worldwide companions for his or her efforts all through the investigation to assist carry justice for the victims.”

In keeping with the indictment, Potapenko and Turõgin claimed that HashFlare was a large cryptocurrency mining operation. Cryptocurrency mining is the method of utilizing computer systems to generate cryptocurrency, comparable to Bitcoin, for revenue. Potapenk and Turõgin supplied contracts which, for a payment, purported to permit clients to hire a proportion of HashFlare’s mining operations in alternate for the digital forex produced by their portion of the operation. HashFlare’s web site enabled clients to see the quantity of digital forex their mining exercise had supposedly generated. Prospects from world wide, together with western Washington, entered into greater than $550 million value of HashFlare contracts between 2015 and 2019.

In keeping with the indictment, these contracts have been fraudulent. HashFlare allegedly didn’t have the digital forex mining gear it claimed to have. HashFlare’s gear allegedly carried out Bitcoin mining at a fee of lower than one % of the computing energy it presupposed to have. When buyers requested to withdraw their mining proceeds, Potapenko and Turõgin weren’t in a position to pay the mined forex as promised. As a substitute, they both resisted making the funds, or paid off the buyers utilizing digital forex the defendants had bought on the open market—not forex that they had mined. HashFlare closed its operations in 2019.

In Could 2017, Potapenko and Turõgin supplied investments in an organization known as Polybius, which they promised would type a financial institution specializing in digital forex. They promised to pay buyers dividends from Polybius’s earnings. The lads raised at the very least $25 million on this scheme and transferred a lot of the cash to different financial institution accounts and digital forex wallets they managed. Polybius by no means fashioned a financial institution or paid any dividends.

The indictment additionally fees Potapenko and Turõgin with conspiring to launder their legal proceeds by utilizing shell corporations and phony contracts and invoices. The cash laundering conspiracy allegedly concerned at the very least 75 actual properties, six luxurious automobiles, cryptocurrency wallets, and hundreds of cryptocurrency mining machines.

Potapenko and Turõgin are each charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and one depend of conspiracy to commit cash laundering. If convicted, Potapenko and Turõgin every face a most penalty of 20 years in jail. A federal district courtroom choose will decide any sentence after contemplating the U.S. Sentencing Tips and different statutory elements.

The FBI is investigating the case.

The USA thanks the Cybercrime Bureau of the Nationwide Felony Police of the Estonian Police and Border Guard for its help with this investigation. The U.S. Division of Justice’s Workplace of Worldwide Affairs offered intensive help to the investigation.

This investigation and right this moment’s arrest show the nice coordination and cooperation between U.S. and Estonian regulation enforcement. Estonia has been an important ally to disrupt this cyber-enabled crime, and the USA thanks the Estonians for his or her continued help and coordination.

Trial Attorneys Adrienne E. Rosen and Olivia Zhu of the Felony Division’s Cash Laundering and Asset Restoration Part and Assistant U.S. Attorneys Seth Wilkinson and Jehiel I. Baer for the Western District of Washington are prosecuting the case.

People who imagine they might have been a sufferer on this case ought to go to www.fbi.gov/hashflare for extra data.

An indictment is merely an allegation. All defendants are presumed harmless till confirmed responsible past an inexpensive doubt in a courtroom of regulation.