Two citizens of Estonia have been charged with running a trio of cryptocurrency-related scams which defrauded people of $575 million.
Sergei Potapenko and Ivan Turogin, both 37 and from Tallinn, founded HashCoins in 2013 as a manufacturer of cryptocurrency mining equipment but did not fulfil orders which had been paid for in full.
In 2015 they set up HashFlare, which claimed to convert the orders for equipment to “remote mining services” and, should the ‘clients’ send funds, promised to give them a share of the profits.
Prosecutors said they mined less than 1% of the total mining hashrate sold to customers, showed them fraudulent crypto balances and prevented them from cashing out.
Polybius Bank, a third venture, raised $25m from investors around the world via a 2017 Initial Coin Offering but didn’t come to anything. HashFlare officially closed down in August 2019.
Arrested in Tallinn on November 20th, Potapenko and Turogin have been charged in Washington State, USA with one count each of conspiracy to commit wire fraud, 16 counts each of wire fraud and one count each of conspiracy to commit money laundering. Prosecutors have requested a jury trial.
Nick Brown, attorney for the Western District of Washington, called the size and scope of the alleged scheme “truly astounding”.
“These defendants capitalised on both the allure of cryptocurrency and the mystery surrounding cryptocurrency mining, to commit an enormous Ponzi scheme,” he said.