Two Estonian citizens were detained in Tallinn after being accused of participating in a $575 million crypto fraud and money laundering scheme, according to the press release published by the U.S. Department of Justice (DOJ) on November 21st.
Sergei Potapenko and Ivan Turõgin allegedly defrauded hundreds of thousands of people by luring them into fraudulent equipment rental contracts with their crypto-mining company called Hashflare.
They also set up a fake bank called Polybius Bank. In reality, this company was never legitimate, so they never paid the dividends they had promised to those who invested in it.
“Victims paid more than $575 million to Potapenko and Turõgin’s companies.” They then laundered the funds through shell companies that bought expensive real estate, cars, and other items for themselves.
Kenneth A. Polite, Jr., an assistant attorney general in the Criminal Division of the Justice Department, said that using more sophisticated frauds, unscrupulous actors may now more easily take advantage of innocent victims both domestically and internationally due to new technologies.
He asserts that the department will not permit these scammers to get away unscathed and will do whatever they can to prevent the public from being exploited further.
Both Estonian Runs “Astounding” Crypto Fraud Scheme
U.S. Attorney Nick Brown for 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.
The indictment alleges that both of the defendent claimed that HashFlare was a major cryptocurrency mining operation. To compensate them, they sold contracts that allowed customers to buy a portion of the company’s mining power in exchange for the profits generated from their rented share.
Customers may view the quantity of virtual cash that their mining activity was said to have produced on the HashFlare website. Between 2015 and 2019, HashFlare contracts totaled more than $550 million, with customers from all around the world, including western Washington.
When investors demanded access to their mining funds, they couldn’t meet the demands. They either resisted providing a payout or just repaid them using virtual currencies they’d purchased on the open market – not ones they’d mined themselves.
The defendants established Polybius in 2017 and raised $25 million, which they transferred to various bank accounts and cryptocurrency wallets they owned.
In addition, hundreds of bitcoin mining devices, six luxury cars, at least 75 real estate assets, and cryptocurrency wallets were reportedly used in the money laundering scheme.
According to the news release, Potapenko and Turõgin are both accused of conspiring to conduct wire fraud, as well as 16 counts of wire fraud and one count of conspiring to launder money.
Both of them will receive up to 20 years in prison if they found guilty. The U.S. Sentencing Guidelines and other statutory considerations will also be considered when a federal district court judge decides on a sentence.
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