Estonian scammers committed a $575 million fraud

Sergei Potapenko and Ivan Turõgin were arrested on Nov. 20 in Tallinn, as reported by the U.S. Department of Justice. They are suspected of a $575 million cryptocurrency fraud and money laundering. The 18-count indictment covered all the illegal actions of the criminal duo within a multi-faceted scam scheme.

According to Assistant Attorney General Kenneth A. Polite Jr., the perpetrators managed to attract hundreds of thousands of people into their multi-faceted scheme using innovative technology. However, law enforcement agencies are committed to tackling the inventive scammers:

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 scheme developed by Potapenko and Turõgin comprised several aspects. The first was a fake mining service called HashFlare. The criminal duo offered their victims from different countries, including the United States, to rent mining equipment and earn virtual currency as remuneration for their mining activity. From 2015 to 2019, the scammers concluded contracts worth more than $550 million.

The clients gained access to the HashFlare website, which displayed the amount of virtual assets they had supposedly generated by mining. However, the victims were unable to withdraw their cryptocurrency. The criminals either ignored investors' appeals or paid off them using tokens the defendants had purchased on the open market. As the investigation revealed, all the concluded contracts were fraudulent, and HashFlare did not even have the mining equipment.  

Another of the fraudsters' projects was Polybius, which they promised would launch a crypto bank. Since May 2017, Potapenko and Turõgin attracted investors, promising to pay them dividends from Polybius Bank's profits in the future. This scheme allowed them to raise at least $25 million. The defendants transferred this money to virtual wallets and bank accounts they controlled. Polybius Bank has never been established.

The men are both charged with money laundering. They created shell companies, phony contracts, and invoices. The criminal schemes involved more than 70 properties, luxury cars, bank accounts, cryptocurrency wallets, and mining equipment.

U.S. Attorney Nick Brown said that “the size and scope of the alleged scheme is truly astounding”. Capitalizing on the popularity of digital assets and the gullibility of investors (often bordering on naivety), the scammers developed a global Ponzi scheme. Given the scale of the crimes, the Cyber Crime Bureau, the Estonian Police and Border Guard, and the U.S. Department of Justice's Office of International Affairs assisted the FBI in the investigation.

If convicted, Potapenko and Turõgin will face a penalty of 20 years in prison.