Authorities apprehended 2 Estonian men yesterday on charges of operating a cryptocurrency scam as well as money laundering scams that have bilked “thousands of victims.” The suspects allegedly used the proceeds from their crimes to purchase properties and luxury cars.
According to authorities, the suspects Ivan Turogin & Sergei Potapenko ran a number of different schemes. In total, the suspects are accused of bilking thousands of victims out of $575 million.
The two 37-year-olds scammed people by getting them to invest in a HashFlare i.e cryptocurrency mining service, and a fake virtual bank called Polybius.
The prosecutors allege that the defendants defrauded their victims by convincing them to get into rental contracts for the equipment with their cryptocurrency mining service, HashFlare. In addition, they persuaded people to invest in a Polybius Bank ( virtual currency bank ). However, this bank was fraudulent and never paid dividends to victims.
How They Started This Ponzi Scheme
As court documents show, both men behind HashCoins attempted to carry out a complex scheme that started in December 2013.
The Estonian store said it sold Bitcoin mining equipment to customers worldwide, who had to pay all amount when they placed an order.
HashCoins was actually reselling mining equipment from other manufacturers rather than making and selling its own components. It also didn’t have the means to deliver ordered hardware to customers who had already paid.
At the end of May 2015, to keep customers satisfied and prevent having to give them refunds, Turõgin & Potapenko pivoted. HashCoins began informing customers that, instead of receiving their ordered physical machines, they would receive a percentage of profits from a new mining operation called HashFlare. This new operation supposedly utilized HashCoin’s pre-existing mining equipment.
The men also used this second fraudulent business to persuade new customers to buy virtual currency mining capacity using another mode of payment like bank wires, credit cards and virtual currency transfers. This would benefit some earlier investors while also allowing the perpetrators to line their own pockets.
Potapenko, Turõgin, and other complicit individuals illegally gained more than $550 million through this fraudulent scheme- which can be succinctly described as a Ponzi scheme.
Potapenko and Turõgin stand accused of using false companies, contracts, and invoices to illegally launder their criminal proceeds. Overall six luxury vehicles,75 real properties, thousands of cryptocurrency mining machines and crypto wallets were included in the money laundering conspiracy.
Ivan Turõgin and Sergei Potapenko were got arrested in Tallinn, Estonia after a collaborative probe by US and Estonian law enforcement. The men are now facing 18 charges of wire fraud conspiracy, wire fraud, and money laundering conspiracy. If convicted, they could each receive a 20-year prison sentence.
This is believed to be one of the biggest cryptocurrency scams in history and underscores the need for greater regulation in the crypto space. As the industry continues to grow, it is important that measures are taken to protect investors. so if people go to buy Bitcoin in Dubai or anywhere else in the world should feel secure.
Authority’s Take on This
According to US Attorney Nick Brown, the size and scope of the scheme are unbelievable. By taking advantage of people’s fascination with cryptocurrency as well as their lack of knowledge regarding cryptocurrency mining, these defendants were able to pull off a massive Ponzi scheme.
The nation’s government also cautioned that advancing technologies had “broadened the scope of risks for fraud”.
This case arrives when the cryptocurrency market is experiencing significant anxiety, due to the collapse of FTX–the world’s 2nd-largest crypto exchange. The arrests are likely to add to the concerns of investors, who have already been jittery about the possibility of fraud in the unregulated world of cryptocurrencies. It remains to be seen how much impact the case will have on the market, but it is sure to add more volatility to an already volatile market.
The indictment said that Turõgin, Potapenko and others then used that laundered money to live a luxurious lifestyle instead of giving it back to the victim investors.
Estonian police investigated the case with the FBI, and US authorities want to extradite the pair for their involvement in an international fraud scheme, a federal indictment has been issued in the United States.
The FBI is still investigating the case, but these two people will soon be sentenced in federal district court.