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2 Estonian citizens face charges over alleged $575M digital asset scam

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Wahid Pessarlay

The U.S. Department of Justice (DoJ) has busted a digital asset fraud ring that has been operating for nearly 10 years. Federal prosecutors charged two Estonians and their entities in connection with their role in the scheme that cost investors losses of over $575 million.

Court documents reveal that Sergei Potapenko and Ivan Turogin, residents of Tallinn, Estonia, teamed up to defraud hundreds of investors using digital assets. The duo masqueraded as professional traders, promising investors that they would receive impressive returns.

The document disclosed that the defendants used fabricated documents and fraudulent representations to siphon the majority of investor funds for their personal use. Using a web of shell companies and digital assets, the duo moved the funds to their home country of Estonia, where they used it to splurge on luxury items.

Another scheme used in defrauding investors was posing their company, HashCoins, as a digital asset mining equipment manufacturer. HashCoins took funds from individuals looking to buy mining equipment, but instead of delivery, it “found reasons to delay the shipment of the majority of its sales.”

Due to the growing number of disillusioned customers, the pair floated a second company called HashFlare and told its creditors that it was switching its business model to “remote mining services.” Instead of mining digital assets, the defendants operated a Ponzi scheme to scam investors of their hard-earned funds.

“The virtual currency returns and balances presented on investors’ accounts were wholly fraudulent because HashFlare had not produced the represented virtual currency,” read the indictment. “To conceal this fact, when investors submitted requests to withdraw their mining proceeds, defendants either resisted making payments or paid off the investors using virtual currency defendants had simply purchased on the open market.”

It gets even worse

Court documents show that Potapenko and Turogin floated another company, Polybius Bank, a phony digital asset bank based in Estonia. After raising $25 million from investors in an initial coin offering (ICO), the project went bust, and investors’ funds went up in smoke. 

The duo was hit with 16 counts each of wire fraud, one count each of conspiracy to commit wire fraud, and one count each of conspiracy to commit money laundering. Both defendants are facing at least 20 years in prison if found guilty of the charges and were arrested by law enforcement agents in Tallinn on November 20.

It appears the pair will be extradited to the U.S. for their trial, according to the DOJ document. The indictment was filed in the U.S. District Court for the Western District of Washington in Seattle.

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