Two Estonian citizens have been accused of being involved in what federal prosecutors in Washington state described as a $575M cryptocurrency fraud and money laundering scheme, according to a release by the U.S. Department of Justice on Monday.
Sergei Potapenko and Ivan Turogin, both of whom were 37-year-old residents of Tallinn, Estonia, allegedly defrauded hundreds of thousands of victims through a series of crypto-related schemes.
The indictment indicated that Potapenko and Turogin allegedly laundered proceeds of their schemes through shell companies and used investor funds to purchase luxury cars and real estate in Estonia. They also "induced victims to enter into fraudulent equipment rental contracts with the defendants’ cryptocurrency mining service called HashFlare," the prosecutors said.
Specifically, HashFlare, started in May 2015, was portrayed as a huge crypto mining business, offering contracts to let customers rent a percentage of the company's mining operations in exchange for the virtual currency mined by their portion of the operation. Between 2015 and 2019, prosecutors said customers from across the globe entered into over $550M worth of HashFlare contracts
HashFlare, however, was accused of mining less than 1% of all the computing power sold to its customers, according to the indictment, which was returned by a grand jury on October 27 and unsealed Monday. And when investors asked to withdraw their mining proceeds, Potapenko and Turogi resisted making the payments, or paid off the investors using crypto from the open market instead of tokens that were apparently mined at the company.
The charges brought against Potapenko and Turogi included conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering, the indictment said. If they're found guilt, they each face a maximum penalty of 20 years in prison.
The news highlighted how law enforcement has become more focused on cracking down on illicit crypto activity in an effort to safeguard consumers. Earlier this month, for instance, the Justice Department seized billions in crypto from the Silk Road scammer.