Two Estonians have been arrested and charged with defrauding hundreds of thousands of investors out of $575 million in an alleged cryptocurrency mining and virtual banking scam.
Sergei Potapenko and Ivan Turõgin allegedly lured potential investors into buying cryptocurrency mining contracts and investing in a virtual currency bank that didn’t exist.
The case is being investigated by the FBI, the Estonian Police and the Border Guard’s National Criminal Police Cybercrime Directorate, with assistance from the US Department of Justice’s Office of International Affairs (OIA).
The pair were arrested in Tallinn, Estonia, on Nov. 20 and charged with 18 counts of conspiracy, wire fraud and conspiracy to commit money laundering, each of which carries a maximum penalty of 20 years in prison.
According to the U.S. indictment, Potapenko and Turõgin used shell companies to launder the proceeds of the fraud and buy real estate and luxury cars.
“New technology is making it easier for bad actors to take advantage of innocent victims in increasingly sophisticated scams — whether in the United States or abroad,” said Assistant U.S. Attorney Kenneth Polite of the Justice Department’s Criminal Division.
Nick Brown, U.S. Attorney for the Western District of Washington — whose indictment was returned by the grand jury — said: “These defendants used the allure of crypto and the veil of mystery surrounding cryptocurrency mining to run a gigantic Ponzi scheme.”
Early investors were rewarded from those who invested later, Brown said, with proceeds hidden in Estonian real estate, luxury cars, bank accounts and virtual currency wallets around the world.
Potapenko and Turõgin allegedly offered clients contracts in which they paid a fee to lease a percentage of their HashFlare company’s mining operations.
But according to the indictment, HashFlare’s equipment was mining bitcoin at less than one percent of the computing power it claimed to have.
Potapenko and Turõgin are also said to have invested in a company called Polybius, which they say will form a bank specializing in cryptocurrencies.
The individuals raised at least $25 million in the scheme and transferred most of the funds to other bank accounts and virtual currency wallets they controlled, the indictment said. Polybius never founded a bank or paid any dividends.
Both defendants appeared in court in Tallinn and are awaiting extradition to the United States.
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