Two Estonian Men Accused Of Scamming Thousands Out Of $575 Million Worth Of Cryptocurrency, Feds Say

Two Estonian citizens who were allegedly involved in a $575 million cryptocurrency fraud and money laundering conspiracy were arrested, Radar has learned.

According to the United States Department of Justice, Sergei Potapenko and Ivan Turõgin, both 37, were arrested in connection to the massive fraud case. Their indictments were returned by a grand jury in the Western District of Washington, D.C., on Oct. 27 and were recently unsealed.

Court documents state that Potapenko and Turogin are accused of defrauding hundreds of thousands of victims through a multi-faceted scheme. Through a cryptocurrency mining service called HashFlare, the defendants coerced victims into fraudulent rent contacts, according to court documents.

The duo is also accused of getting victims to invest in a virtual currency bank called Polybius Bank, which didn't exist. They allegedly never paid out the dividends. The total invested by victims was more than $575 million, which Potapenko and Turõgin used in shell companies to launder the fraudulent proceeds to purchase real estate and luxury cars, court documents state.

“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,” said 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.”

According to the indictment, the duo sold HashFlare as a massive cryptocurrency mining operation, which is a process of using computers to generate cryptocurrency, such as Bitcoin, for profit. Investigators say HashFlare performed Bitcoin mining at a rate of less than one percent of the computing power it was described as having. Since the cryptocurrency had no physical currency to back it, Potapenko and Turõgin allegedly paid off investors with more virtual currency.

HashFlare closed in 2019. The duo is also accused of conspiring to launder their criminal proceeds through shell companies and phony contracts and invoices. The money laundering scheme is believed to have involved 75 real estate properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.

Potapenko and Turõgin are both charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering. If convicted, Potapenko and Turõgin each face a maximum penalty of 20 years in prison.

"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,” said 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.”