The Justice Department is currently prosecuting a case accusing two men in Estonia of defrauding investors in a Byzantine cryptocurrency mining company that generated $575 million, authorities said.
Sergei Potapenko and Ivan Turõgin, each 39, were arrested in Tallinn, Estonia, and charged within the Western District of Washington on an 18-count indictment. The Ministry of Justice said in a press release todayAccording to the indictment, the duo claimed to supply clients rights to mine virtual currencies for a fee, but in point of fact they relied on bogus invoices, fake documents and a crypto mining capability of lower than 1% of what they claimed. Potapenko and Turõgin, in addition to others who will not be named within the indictment, spent the cash people paid them on real estate in Estonia, luxury cars and lavish gifts, authorities said.
“The size and scope of the alleged scheme are truly astonishing. These defendants exploited both the allure of cryptocurrency and the mystery surrounding cryptocurrency mining to perpetrate a massive Ponzi scheme,” said U.S. Attorney Nick Brown of the Western District of Washington in a press release. “They lured investors with false claims and then paid off early investors with the money of those who invested later. They attempted to hide their ill-gotten gains in Estonian real estate, luxury cars, and bank accounts and virtual wallets around the world. U.S. and Estonian authorities are working to seize and restrict these assets and to extract the profits from these crimes.” The The FBI can be investigating the scam and is actively in search of victims within the probe.
According to authorities, starting in 2013, Potapenko and Turõgin relied on a network of shell corporations, bank accounts, and virtual asset providers and wallets to funnel fraudulently obtained funds from victims who thought they were purchasing mining hardware. According to the U.S. attorney, the duo claimed that their virtual cryptocurrency mining process, the technique of verifying and adding transactions to a blockchain ledger, had significant power and capability. Currency mining performance is measured by the “hashrate,” which indicates the variety of calculations the pc can perform per second. With cloud or distant mining, individuals can rent what’s often known as hashrate from a mining company and receive a portion of the virtual coins mined.
Potapenko and Turõgin founded an organization called HashCoins in Estonia in December 2013 and marketed the corporate’s mining equipment for Bitcoin and other digital assets. The indictment states. In reality, HashCoins didn’t manufacture the devices itself, but bought, assembled and resold parts from other manufacturers. By 2014, HashCoins had a flood of dissatisfied customers and was struggling to honor refund requests and fulfill recent orders, authorities said.
In 2015, HashCoins told some customers that their undelivered currency mining equipment could be operated remotely, relatively than delivering actual machines to customers that they’d paid for. Under the brand new deal, customers would receive rights to mining contracts that may give them a percentage of the profits from the general operation, often known as HashFlare, authorities allege.
HashFlare allegedly allowed its customers to purchase capability for mining virtual currencies, which they paid for with bank cards, bank transfers and virtual currency transfers. Potapenko and Turõgin told customers they may access their accounts through the HashFlare website, view their account balances and withdraw or reinvest funds to purchase additional hashrate, authorities said. This netted greater than $550 million from customers who desired to take part in virtual currency mining. In reality, HashFlare’s mining activity was estimated at lower than 1% of the hashrate it sold to customers for bitcoin mining and lower than 3% of the hashrate it sold for mining other coins.
And when people desired to withdraw their alleged profits from the crypto mining operations, they were either denied payment or could only withdraw small amounts, the lawsuit said. Sometimes Potapenko and Turõgin bought virtual currencies on the open market and paid them out to investors. This makes it a Ponzi scheme, the Justice Department said.
In 2017, the 2 founded one other company called Polybius, which was supposedly a digital bank.
Polybius raised $25 million from outside investors in an initial coin offering. The majority of the funds were transferred to accounts controlled by Potapenko and Turõgin. They never built a digital bank and never paid dividends to investors, authorities claimed.
The two were arrested in Estonia in 2022 but weren’t delivered until April 2024after appealing the unique decision. Oskar Gross, head of the Cybercrime Bureau of the Estonian National Criminal Police, said: “The sheer scale of this investigation is described by the fact that this is one of the largest fraud cases we have ever had in Estonia.”
