Two Estonians Charged in $575 Million Crypto Mining Service Scam

DOJ arrests two Estonians related to $575 million crypto fraud
  • The U.S. Department of Justice has arrested Sergei Potapenko and Ivan Turogin for running multiple Ponzi schemes and scam businesses totaling $575 million in lost customer funds.
  • The 37-year-old Estonians’ crypto mining company HashFlare offered users to rent the company’s mining operations. It turns out that it had no mining equipment it claimed to have.
  • The two men also stole $25 million from investors who put their money in Polybius, a company that was supposed to become a crypto bank.
  • Potapenko and Turogin tried to launder the stolen money via shell accounts and fake invoices.
  • If convicted, they face 20 years in prison.

The U.S. Department of Justice has announced the arrest of two Estonian citizens who ran numerous crypto scams that have milked $575 million from hundreds of thousands of customers around the world.

From 2015 to 2019, Sergei Potapenko and Ivan Turogin, both 37-year-old based in Tallinn, ran a crypto mining company HashFlare. Their company allowed users to rent its mining operations in exchange for a portion of the mined crypto. Potential customers needed to sign a contract with the company and deposit funds, as well as pay a service fee. Customers, who poured more than $550 million over four years, were able to see how much they’ve earned through HashFlare’s mining operations live on their website.

However, investigators have found that HashFlare didn’t have the mining equipment it claimed to have. The firm’s hardware was able to mine Bitcoin at a rate of less than 1% of the computer power it claimed to have. When some investors asked to withdraw their money, HashFlare either failed to honor withdrawals or repaid in cryptocurrencies that it bought on the spot.

Potapenko and Turogin’s other scam involved an entity called Polybius. This was supposed to become a bank specializing in cryptocurrencies. The two men offered potential investors dividends from the company’s profits and managed to raise at least $25 million. Polybius never became a bank, nor did it pay any dividends. 

“The size and scope of the alleged scheme is truly astounding. These defendants capitalized on both the allure of cryptocurrency, and the mystery surrounding cryptocurrency mining, to commit an enormous Ponzi scheme,” said U.S. Attorney Nick Brown for the Western District of Washington.

The pair transferred the raised money, together with the stolen funds from HashFlare customers, to their bank accounts and crypto wallets. They then used shell companies and bogus invoices to launder the money. The whole money laundering scheme involved at least 75 different real estate properties in Estonia, six luxury vehicles, crypto wallets, and a massive amount of crypto mining equipment.

The FBI is currently investigating the case. If Potapenko and Turogin are found guilty, they face 20 years in prison.

On the Flipside

  • The partners in crime, Sergei Potapenko and Ivan Turogin, have yet to be found guilty.

Why You Should Care

The charges against Sergei Potapenko and Ivan Turogin show that shady activities were rampant in the early days of crypto. Nevertheless, investors should thoroughly do their due diligence before making investment decisions. Recent revelations about FTX show that scams and frauds still exist in the industry.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

Author

Rue Abernai is a blockchain content writer focused on Web 3.0 domains, DeFi, and Ethereum Layer-2s. Rue believes blockchain technology has the potential to transform how we see and interact with society, economy, and culture. Rue spends his spare time hiking, playing with his dog, and reading. He has been active in blockchain and cryptocurrencies since 2020.