Crypto fraud on a historic scale
Estonia agrees to alleged crypto currency scammers US extradition
The Estonian government approved the extradition to the United States of two businessmen charged with being involved in a complex online fraud scheme worth hundreds of millions of US dollars.
The pair, Ivan Turõgin and Sergei Potapenko, allegedly defrauded hundreds of thousands of victims through a multi-layered scheme which included encouraging victims to enter into fraudulent equipment rental contracts with the defendants’ cryptocurrency mining service, HashFlare, and their entire activity took in around US$575 million, Postimees reports.
The FBI in conjunction with Estonian authorities apprehended Turõgin and Potapenko in Tallinn in late November last year.
They face an 18-count indictment for their alleged involvement in the cryptocurrency fraud and money laundering conspiracy.
Prime Minister Kaja Kallas said the decision to approve the extradition of the two men had been made at government level, meaning the political parties can challenge that decision at the legislature, if they so desire.
Cybercrime Bureau of the National Criminal Police and the FBI arrested Sergei Potapenko and Ivan Turõgin, who are both suspected of crypto fraud and money laundering.
According to court documents, Potapenko and Turõgin, both 37, allegedly defrauded hundreds of thousands of victims through a multi-faceted scheme.
Two Estonian Citizens Arrested in $575 Million Cryptocurrency Fraud and Money Laundering Scheme
Two Estonian citizens were arrested in Tallinn, Estonia, yesterday on an 18-count indictment for their alleged involvement in a $575 million cryptocurrency fraud and money laundering conspiracy.
The indictment was returned by a grand jury in the Western District of Washington on Oct. 27 and unsealed today.
According to court documents, Sergei Potapenko and Ivan Turõgin, both 37, allegedly defrauded hundreds of thousands of victims through a multi-faceted scheme. They induced victims to enter into fraudulent equipment rental contracts with the defendants’ cryptocurrency mining service called HashFlare. They also caused victims to invest in a virtual currency bank called Polybius Bank. In reality, Polybius was never actually a bank, and never paid out the promised dividends. Victims paid more than $575 million to Potapenko and Turõgin’s companies. Potapenko and Turõgin then used shell companies to launder the fraud proceeds and to purchase real estate and luxury cars.
“New technology has made it easier for bad actors to take advantage of innocent victims – both in the U.S. and abroad – in increasingly complex scams,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “The department is committed to preventing the public from losing more of their hard-earned money to these scams and will not allow these defendants, or others like them, to keep the fruits of their crimes.”
“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. “They lured investors with false representations and then paid early investors off with money from those who invested later. They tried to hide their ill-gotten gain in Estonian properties, luxury cars, and bank accounts and virtual currency wallets around the world. U.S. and Estonian authorities are working to seize and restrain these assets and take the profit out of these crimes.”
“The FBI is committed to pursuing subjects across international boundaries who are utilizing increasingly complex schemes to defraud investors,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division. “Victims in the U.S. and abroad invested into what they believed were sophisticated virtual asset ventures, but it was all part of a fraudulent scheme and thousands of victims were harmed as a result. The FBI thanks our national and international partners for their efforts throughout the investigation to help bring justice for the victims.”
According to the indictment, Potapenko and Turõgin claimed that HashFlare was a massive cryptocurrency mining operation. Cryptocurrency mining is the process of using computers to generate cryptocurrency, such as Bitcoin, for profit. Potapenk and Turõgin offered contracts which, for a fee, purported to allow customers to rent a percentage of HashFlare’s mining operations in exchange for the virtual currency produced by their portion of the operation. HashFlare’s website enabled customers to see the amount of virtual currency their mining activity had supposedly generated. Customers from around the world, including western Washington, entered into more than $550 million worth of HashFlare contracts between 2015 and 2019.
According to the indictment, these contracts were fraudulent. HashFlare allegedly did not have the virtual currency mining equipment it claimed to have. HashFlare’s equipment allegedly performed Bitcoin mining at a rate of less than one percent of the computing power it purported to have. When investors asked to withdraw their mining proceeds, Potapenko and Turõgin were not able to pay the mined currency as promised. Instead, they either resisted making the payments, or paid off the investors using virtual currency the defendants had purchased on the open market—not currency they had mined. HashFlare closed its operations in 2019.
In May 2017, Potapenko and Turõgin offered investments in a company called Polybius, which they promised would form a bank specializing in virtual currency. They promised to pay investors dividends from Polybius’s profits. The men raised at least $25 million in this scheme and transferred most of the money to other bank accounts and virtual currency wallets they controlled. Polybius never formed a bank or paid any dividends.
The indictment also charges Potapenko and Turõgin with conspiring to launder their criminal proceeds by using shell companies and phony contracts and invoices. The money laundering conspiracy allegedly involved at least 75 real properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.
Potapenko and Turõgin are both charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering. If convicted, Potapenko and Turõgin each face a maximum penalty of 20 years in prison. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
The FBI is investigating the case
The United States thanks the Cybercrime Bureau of the National Criminal Police of the Estonian Police and Border Guard for its support with this investigation. The U.S. Department of Justice’s Office of International Affairs provided extensive assistance to the investigation.
This investigation and today’s arrest demonstrate the great coordination and cooperation between U.S. and Estonian law enforcement. Estonia has been a crucial ally to disrupt this cyber-enabled crime, and the United States thanks the Estonians for their continued assistance and coordination.
Trial Attorneys Adrienne E. Rosen and Olivia Zhu of the Criminal Division’s Money Laundering and Asset Recovery Section and Assistant U.S. Attorneys Seth Wilkinson and Jehiel I. Baer for the Western District of Washington are prosecuting the case.
Individuals who believe they may have been a victim in this case should visit www.fbi.gov/hashflare for more information.
The latest crypto thieves
The Central Criminal Police together with the FBI arrested Ida-Viru crypto-entrepreneurs Ivan Turygin and Sergei Potapenko. According to suspicion, more than $575 million was defrauded over several years. It was promised to be an investment in a crypto mine, but in reality it was a Ponzi scheme.
Last year was a tough one in the crypto world. There was a number of unpleasant news from Estonia and other countries. Small selection. A month ago, Estonian police detained four people who cheated eight million euros using a cryptographic scheme called Dagcoin. Two weeks ago, news broke that global crypto exchange FTX had collapsed. Company founder Sam Bankman-Fried, whose assets were still valued at $26 billion in the spring, suddenly found himself a zero boy. A few days later, the value of the Change crypto exchange, created by Estonians, suddenly decreased by 80 percent. And now the latest news is the arrest of Potapenko and Turygin.
Taken in isolation, these are different cases. Change is a real business (although a little doubt remains) that has simply been caught up in the hands of crypto turbulence. However, Potapenko-Turygin’s schemes are a pure deception, even if there were some elements of real business at work.
Suspects of cryptocurrency fraud have an impressive amount of real estate in Estonia
The charges against Potapenko and Turygin also relate to a criminal agreement to launder profits using company mailboxes and false contracts and invoices. The estate was allegedly involved in a money laundering conspiracy. Kiikri 2 buildings in the center of Tallinn.
The United States is asking Estonia to seize the assets of crypto magnates Sergei Potapenko and Ivan Turygin, suspected of defrauding $575 million, and the American investigative document contains an impressive list of real estate properties in Tallinn, Harju County and Ida-Viru County.
The US Department of Justice document lists 28 properties as owned by Potapenko and Turygin, with dozens of properties in several buildings. The document mentions six other luxury cars, two bank accounts at LHV Bank and 15 cryptocurrency mining devices located in Ida-Virumaa.
Men own real estate, ranging from offices, apartments and private houses to plots, parking spaces and warehouses. The men mainly bought real estate in the center of Tallinn and in Pirita, in Peetri Harju County and in the village of Katase near Lake Peipsi in Alutaguse parish, Ida-Virumaa.
“They lived well – a luxury car and house, dozens of apartments in different parts of the world” – this is how their close friend describes the life of the prisoners.
The Central Criminal Police released video footage of a search of the suspects’ house. It’s like an excerpt from some American film – a white Bentley in front of a luxurious mansion and wads of money in the safe.
The Estonian government has decided to extradite crypto businessmen Ivan Turygin and Sergei Potapenko to the United States, accused of fraud and criminal conspiracies for the purpose of money laundering.
Interior Minister Lauri Läänemets confirmed at a press conference that the government had made this decision, but was unable to comment further on the matter as it had been brought to the attention of the government by the Minister of Justice. Prime Minister Kaja Kallas added that the government’s decision could be challenged in court.
From the materials of the government meeting it turned out that the US Department of Justice sent a written request to Estonia for the extradition of two people.
The request is based on an extradition treaty between the Estonian government and the US government, signed on February 8, 2006 and entered into force on April 7, 2009. According to it, countries undertake to extradite to each other persons whom the requesting country suspects, accuses or has convicted of a crime punishable under the laws of both countries by imprisonment for a term of more than one year or a more severe penalty.
Both individuals are charged with fraud and conspiracy to commit money laundering in the United States.
The Harju County Court, by a ruling dated March 15, 2023, declared the extradition of two persons to the United States legally permissible.
According to the prosecution, Potapenko and Turygin allegedly defrauded hundreds of thousands of victims using a multi-step scheme. They encouraged victims to enter into fraudulent equipment rental contracts with a cryptocurrency mining service called HashFlare. They also persuaded victims to invest in a virtual currency bank called Polybius Bank. In fact, Polybius was never a bank and never paid the promised dividends. The victims paid Potapenko and Turygin’s companies more than $575 million. Potapenko and Turygin then used shell companies to launder the proceeds of the fraud, as well as the purchase of real estate and luxury cars.
If convicted in the United States, Turygin and Potapenko face up to 20 years in prison for each of their alleged crimes.
The case of large-scale cryptocurrency fraud, in which two Estonian residents are suspected of stealing $575 million, will not be the last, according to the Money Laundering Data Bureau. Due to lax regulation, Estonia was a cryptocurrency paradise for many years, but now the situation has changed.
