Two Estonians plead guilty in $577M cryptocurrency Ponzi scheme
Two Estonian nationals may spend the next 20 years in prison for stealing hundreds of millions of dollars through a massive cryptocurrency Ponzi scheme, the US Department of Justice announced last week.
The fraudulent operation
“According to court documents, Sergei Potapenko and Ivan Turõgin, both 40, sold contracts to customers entitling them to a share of cryptocurrency mined by the defendants’ purported cryptocurrency mining service, HashFlare,” said the Justice Department.
“Between 2015 and 2019, Hashflare’s sales totaled more than $577 million, but HashFlare did not possess the requisite computing capacity to perform the vast majority of the mining the defendants told HashFlare customers it performed. HashFlare’s web-based dashboard, which purported to show customers their mining profits, instead reflected falsified data.”
The two took advantage of victims’ interest in as well as limited knowledge of how cryptocurrency mining works and can (or cannot) be profitable. As is typical of Ponzi schemes, the early investors were paid off with the money later investors brought in.
They used the proceeds of their fraud conspiracy to purchase real estate and luxury vehicles, and make investments (including cryptocurrency investments).
Guilty pleas and forfeited assets
The two fraudsters were arrested in late 2022 in Tallinn, Estonia and later extradited to the US.
At the time, they were charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering.
Apart from the fraudulent cryptocurrency mining scheme, they were also accused of defrauding victims after tricking them into investing in a non-existent “virtual currency bank” called Polybius Bank.
Potapenko and Turõgin pleaded guilty to one count of conspiracy to commit wire fraud, and are scheduled to be sentenced on May 8. As part of their guilty pleas, they will forfeit assets worth over $400 million, and these will be used to compensate their victims.