Two Estonian citizens arrested in $575 mil cryptocurrency fraud, money laundering Case

Police in Estonia have arrested two men suspected of running a $575m (£485m) cryptocurrency scam involving hundreds of thousands of victims.

Estonian police investigated the case with the FBI, and US authorities want to extradite the pair – Estonians Sergei Potapenko and Ivan Turogin.

The two 37-year-olds allegedly got people to invest in a cryptocurrency mining service called HashFlare and a fake virtual bank called Polybius.

A US indictment has been issued.

A statement from the US Department of Justice (DoJ) says the pair are accused of wire fraud and conspiracy to commit money laundering – crimes punishable by up to 20 years in prison.

The defendants have appeared in court in the Estonian capital Tallinn and are being held pending extradition to the US, the statement says.

There was no immediate comment from their representatives.

Giving details of the alleged scheme, the DoJ says the two defrauded victims by offering them the chance to buy into HashFlare’s cryptocurrency mining operations.

Crypto mining uses computers to generate virtual coins for profit – a process that consumes significant amounts of computing power.

Customers around the world are said to have purchased more than half a billion dollars’ worth of HashFlare contracts from 2015 to 2019. But the operation allegedly overstated its capabilities.

The DoJ alleges that victims were also promised dividends if they invested in Polybius, a virtual bank Mr Potapenko and Mr Turogin said they had set up.

The defendants are said to have raised $25m this way – but no bank was ever formed.

They used shell companies to launder criminal proceeds, buying at least 75 properties and luxury cars, DoJ says.

Oskar Gross of Estonia’s police cybercrime bureau described the joint investigation – which involved 100 personnel including 15 from the American side – as “long and vast”.

It was “one of the largest fraud cases we’ve ever had in Estonia”, he said on Monday, quoted by Estonia’s ERR news agency.

The country’s authorities also warned that technology had “broadened the risk of fraud”.

The case comes at a time of heightened nervousness in the cryptocurrency market, following the collapse of the world’s second-largest crypto exchange, FTX.

The firm filed for bankruptcy in the US last week, and owes its 50 largest creditors almost $3.1bn (£2.6bn), according to a court filing.

Sergei Potapenko and Ivan Turõgin, both 37, allegedly defrauded hundreds of thousands of victims through a multi-faceted scheme, wherein they induced them to enter fraudulent equipment rental contracts with the defendants’ cryptocurrency mining service called HashFlare, the department said in a statement.

They also made victims invest in a virtual currency bank called Polybius Bank, which in reality was not a bank and never paid out the promised dividends, the Justice Department said.

Victims paid more than $575 million to Potapenko and Turõgin’s companies and they both then used shell companies to launder the fraud proceeds and to purchase real estate and luxury cars, the department said.

The indictment was returned by a grand jury in the Western District of Washington on Oct. 27 and unsealed on Monday.

A representative of Potapenko and Turõgin could not immediately be reached for comment.

“The size and scope of the alleged scheme is truly astounding,” said Assistant Attorney General Kenneth Polite Jr of the Justice Department’s criminal division. “U.S. and Estonian authorities are working to seize and restrain these assets and take the profit out of these crimes.”

The money laundering conspiracy allegedly involved at least 75 real properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines, according to the department, which said the case was probed by the FBI

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