Two Estonian nationals have been arrested and charged in what U.S. prosecutors say is a $575 million cryptocurrency fraud and money laundering scheme.
Sergej Potapenko and Ivan Turõgin are accused of defrauding hundreds of thousands of victims, announced the US Department of Justice, which brought charges against them on Monday.
The defendants allegedly tricked victims into leasing fraudulent equipment with the male cryptomining service HashFlare. They are also accused of soliciting investments in a virtual currency bank called Polybius Bank, which prosecutors say was not a bank and did not pay dividends as promised.
The arrests of both 37-year-old men are the latest sign of an increasing focus by law enforcement agencies on illicit crypto activity around the world. The arrests in Tallinn, Estonia, also come amid the collapse of FTX, a once-major crypto platform run by Sam Bankman-Fried, who was considered the flag bearer of the crypto industry at the height of its influence.
“New technology has made it easier for bad actors to take advantage of innocent victims, both in the United States and abroad, in increasingly complex scams,” said Assistant Attorney General Kenneth Polite.
Earlier this month, the United States indicted James Zhong, who once held more than $3 billion worth of bitcoins from Silk Road, a notorious dark web marketplace that accepted cryptocurrency in exchange for illicit goods.
The indictment against Potapenko and Turõgin alleges that both men portrayed HashFlare as a massive cryptomining operation. Between 2015 and 2019, more than $550 million worth of HashFlare contracts were signed with customers around the world. But prosecutors say those contracts were fraudulent.
HashFlare allegedly did not have the virtual currency mining equipment it claimed to have, and when confronted by investors seeking to withdraw funds, both Potapenko and Turõgin resisted payment or paid investors with crypto from the open market rather than crypto tokens they allegedly mined HashFlare.
The indictment charges both men with conspiracy to commit wire fraud, 16 counts of wire fraud and one count of conspiracy to commit money laundering. According to prosecutors, their money laundering conspiracy involved at least 75 properties, luxury vehicles, cryptocurrency wallets and mining machines. If convicted, both men face a maximum of 20 years in prison.
Nick Brown, the U.S. attorney for the Western District of Washington, where the case was brought, said the size and scope of the alleged scheme was “truly outstanding,” adding that the defendants “capitalized on both the allure of cryptocurrency and the mystery surrounding it.” cryptocurrency mining to run a massive Ponzi scheme”.
The grand jury returned the indictment on October 27 and unsealed it on Monday.