US DEPARTMENT OF JUSTICE, NOV. 21 — Two Estonian residents had 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 immediately.
According to courtroom paperwork, Sergei Potapenko and Ivan Turõgin, each 37, allegedly defrauded tons of of 1000’s 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. They additionally induced victims to put money into a digital forex financial institution known as Polybius Bank. In actuality, Polybius was by no means really a financial institution, and by no means paid out the promised dividends. Victims paid greater than $575 million to Potapenko and Turõgin’s firms. Potapenko and Turõgin then used shell firms to launder the fraud proceeds and to buy actual property and luxurious vehicles.
“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,” mentioned Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “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,” mentioned U.S. Attorney Nick Brown for the Western District of Washington. “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.”
“The FBI is dedicated to pursuing topics throughout worldwide boundaries who’re using more and more complicated schemes to defraud traders,” mentioned Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division. “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 an enormous cryptocurrency mining operation. Cryptocurrency mining is the method of utilizing computer systems to generate cryptocurrency, corresponding to Bitcoin, for revenue. Potapenk and Turõgin provided contracts which, for a price, purported to permit clients to hire a share of HashFlare’s mining operations in trade 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. Customers from around the globe, together with western Washington, entered into greater than $550 million price of HashFlare contracts between 2015 and 2019.
According to the indictment, these contracts had 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 price of lower than one p.c of the computing energy it presupposed to have. When traders requested to withdraw their mining proceeds, Potapenko and Turõgin weren’t capable of pay the mined forex as promised. Instead, they both resisted making the funds, or paid off the traders utilizing digital forex the defendants had bought on the open market—not forex that they had mined. HashFlare closed its operations in 2019.
In May 2017, Potapenko and Turõgin provided investments in an organization known as Polybius, which they promised would kind a financial institution specializing in digital forex. They promised to pay traders dividends from Polybius’s income. The males raised a minimum of $25 million on this scheme and transferred many of the cash to different financial institution accounts and digital forex wallets they managed. Polybius by no means shaped a financial institution or paid any dividends.
The indictment additionally costs Potapenko and Turõgin with conspiring to launder their prison proceeds through the use of shell firms and phony contracts and invoices. The cash laundering conspiracy allegedly concerned a minimum of 75 actual properties, six luxurious autos, cryptocurrency wallets, and 1000’s of cryptocurrency mining machines.
Potapenko and Turõgin are each charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and one rely 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 Guidelines and different statutory components.
The FBI is investigating the case.
The United States thanks the Cybercrime Bureau of the National Criminal Police of the Estonian Police and Border Guard for its assist with this investigation. The U.S. Department of Justice’s Office of International Affairs supplied in depth help to the investigation.
This investigation and immediately’s arrest reveal the good coordination and cooperation between U.S. and Estonian legislation enforcement. Estonia has been a vital ally to disrupt this cyber-enabled crime, and the United States thanks the Estonians for his or her continued help and coordination.
Trial Attorneys Adrienne E. Rosen and Olivia Zhu of the Criminal Division’s Money Laundering and Asset Recovery Section and Assistant U.S. Attorneys Seth Wilkinson and Jehiel I. Baer for the Western District of Washington are prosecuting the case.
Individuals who imagine they could have been a sufferer on this case ought to go to www.fbi.gov/hashflare for extra info.
An indictment is merely an allegation. All defendants are presumed harmless till confirmed responsible past an inexpensive doubt in a courtroom of legislation.