Financial Crime World

Two Estonian Men Charged with $575 Million Cryptocurrency Fraud and Money Laundering Conspiracy in US

Arrest of Two Estonian Citizens

  • Yesterday, two Estonian citizens, Sergei Potapenko and Ivan Turõgin, were arrested in Tallinn, Estonia.
  • The arrests came in connection to an 18-count indictment unsealed in the Western District of Washington.

Alleged Cryptocurrency Fraud

HashFlare - A False Mining Service

  • The pair allegedly lured victims into fraudulent contracts for a purported cryptocurrency mining service called HashFlare.
  • HashFlare claimed to be a massive mining operation and offered contracts to rent a percentage of its operations for a fee.
  • However, the mining service did not have the mining equipment it claimed to have.

HashFlare’s Deception

  • HashFlare’s mining equipment allegedly performed Bitcoin mining at a rate of less than one percent of the computing power it purported to have.
  • When investors attempted to withdraw mining proceeds, Potapenko and Turõgin failed to pay them in the promised currency and instead paid off earlier investors using cryptocurrency purchased on the open market.
  • HashFlare was a Ponzi scheme that used investments from new members to pay off earlier investors.

Nonexistent Virtual Currency Bank - Polybius Bank

  • The men also raised at least $25 million from investors under false promises of paying dividends from the bank’s profits.
  • Polybius Bank was never formed.
  • Most of the funds were transferred to various bank accounts and cryptocurrency wallets controlled by Potapenko and Turõgin.

Money Laundering Conspiracy

  • The indictment also alleges that the duo conspired to launder the criminal proceeds through various shell companies and phony contracts and invoices.
  • The money laundering conspiracy involved at least 75 real properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.

Charges Against Potapenko and Turõgin

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

FBI Investigation and International Cooperation

  • The FBI is currently investigating the case, with assistance from the Cybercrime Bureau of the National Criminal Police of the Estonian Police and Border Guard and the U.S. Department of Justice’s Office of International Affairs.

Alleged Victims

  • Those who believe they may have been victims in this case are urged to visit fbi.gov/hashflare for more information.

Presumed Innocence

  • Both men are presumed innocent until proven guilty beyond a reasonable doubt.