U.S. DOJ Indicts Two Estonian Men Over $575 Million Crypto Fraud

The United States Department of Justice (DOJ) has charged two Estonian Men for operating cryptocurrency schemes that allegedly defrauded investors out of $575 million. 

According to the press release, the defendants, Sergei Potapenko and Ivan Turõgin, both 37, were arrested on November 20 in Tallinn, Estonia, with the combined efforts of the United States Federal Bureau of Investigation (FBI) and Estonian Law Enforcement. 

Multi-faceted Crypto Schemes 

Potapenko and Turõgin allegedly scammed hundreds of thousands of victims through multi-faceted schemes. The defendants operated two illegal companies, a crypto mining firm HashFlare and an investment firm Polybius. 

The duo marketed the investment company in 2017 as a bank with a special focus on digital assets. They also promised victims dividends on their investments when they purchased stakes in the firm. The defendants generated around $25 million from the business and failed to honor their part of the deal. 

Similarly, Potapenko and Turõgin purported HashFlare as a mining equipment production company that develops tools for mining Bitcoin and other cryptocurrencies. However, in reality, HashFlare did not have the infrastructure it claimed to have produced. 

The defendants also signed paid contracts with customers that allowed users to rent a percentage of HashFlare’s mining operations in exchange for the BTC produced using its equipment.

Potapenko and Turõgin generated $550 million from their mining business between 2015 to 2019. 

Astounding Schemes 

U.S. Attorney Nick Brown for the Western District of Washington noted that the length of the scheme is truly “astounding.” 

The defendants used proceeds from the schemes to purchase luxury apartments and expensive cars. 

“The size and scope of the alleged scheme are truly astounding. These defendants capitalized on both the allure of cryptocurrency and the mystery surrounding cryptocurrency mining to commit an enormous Ponzi scheme. They lured investors with false representations and then paid early investors off with money from those who invested later,” said Attorney Brown. 

DOJ Charges Estonian Businessmen 

The DOJ also accused the defendants of conspiracy to commit money laundering. Potapenko and Turõgin allegedly cleaned the criminal funds through shell companies, phony contracts and invoices. 

According to the indictment, the money laundering conspiracy involves 75 physical properties, six luxury cars, crypto wallets, and thousands of cryptocurrency mining machines.

The duo have been charged with 16 counts of wire fraud and one count of conspiracy to commit money laundering. Each defendant will serve a maximum of 20 years in prison if convicted. 

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