According to court documents, Sergei Potapenko and Ivan Turõgin, both 37, allegedly defrauded hundreds of thousands of victims through a multi-faceted scheme. They induced victims to enter into fraudulent equipment rental contracts with the defendants’ cryptocurrency mining service called HashFlare. They also caused victims to invest in a virtual currency bank called Polybius Bank. In reality, Polybius was never actually a bank, and never paid out the promised dividends. Victims paid more than $575 million to Potapenko and Turõgin’s companies. Potapenko and Turõgin then used shell companies to launder the fraud proceeds and to purchase real estate and luxury cars.
New technology has made it easier for bad actors to take advantage of innocent victims – both in the U.S. and abroad – in increasingly complex scams. The size and scope of the alleged scheme are truly astounding. These defendants capitalized on both the allure of cryptocurrency and the mystery surrounding cryptocurrency mining, to commit an enormous Ponzi scheme. They lured investors with false representations and then paid early investors off with money from those who invested later. They tried to hide their ill-gotten gain in Estonian properties, luxury cars, bank accounts, and virtual currency wallets around the world. U.S. and Estonian authorities are working to seize and restrain these assets and take the profit out of these crimes.
The FBI is committed to pursuing subjects across international boundaries who are utilizing increasingly complex schemes to defraud investors, and victims in the U.S. and abroad who invested in what they believed were sophisticated virtual asset ventures, but it was all part of a fraudulent scheme and thousands of victims were harmed as a result.
“The FBI thanks all national and international partners for their efforts throughout the investigation to help bring justice for the victims,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division
According to the indictment, Potapenko and Turõgin claimed that HashFlare was a massive cryptocurrency mining operation. Cryptocurrency mining is the process of using computers to generate cryptocurrency, such as Bitcoin, for profit. Potapenk and Turõgin offered contracts that, for a fee, purported to allow customers to rent a percentage of HashFlare’s mining operations in exchange for the virtual currency produced by their portion of the operation. HashFlare’s website enabled customers to see the amount of virtual currency their mining activity had supposedly generated. Customers from around the world, including Germany, Austria, and Switzerland, but also western Washington, entered into more than $550 million worth of HashFlare contracts between 2015 and 2019.
According to the indictment, these contracts were fraudulent. HashFlare allegedly did not have the virtual currency mining equipment it claimed to have. HashFlare’s equipment allegedly performed Bitcoin mining at a rate of less than one percent of the computing power it purported to have. When investors asked to withdraw their mining proceeds, Potapenko and Turõgin could not pay the mined currency as promised. Instead, they either resisted making the payments or paid off the investors using virtual currency the defendants had purchased on the open market—not currency they had mined. HashFlare closed its operations in 2019.
In May 2017, Potapenko and Turõgin offered investments in a company called Polybius, which they promised would form a bank specializing in virtual currency. They promised to pay investors dividends from Polybius’s profits. The men raised at least $25 million in this scheme and transferred most of the money to other bank accounts and virtual currency wallets they controlled. Polybius never formed a bank or paid any dividends.
The indictment also charges Potapenko and Turõgin with conspiring to launder their criminal proceeds by using shell companies and phony contracts and invoices. The money laundering conspiracy allegedly involved at least 75 real properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.
Potapenko and Turõgin are both charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering. If convicted, Potapenko and Turõgin each face a maximum penalty of 20 years in prison. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
The Cybercrime Bureau of the National Criminal Police of the Estonian Police and Border Guard supported the FBI and its partners with this investigation. The U.S. Department of Justice’s Office of International Affairs provided extensive assistance to the investigation.
This investigation and today’s arrest demonstrate the great coordination and cooperation between law enforcement agencies and private investigations as supportive structures. Estonia has been a crucial ally to disrupt this cyber-enabled crime, and the United States thanks the Estonians for their continued assistance and coordination.
Trial Attorneys Adrienne E. Rosen and Olivia Zhu of the Criminal Division’s Money Laundering and Asset Recovery Section and Assistant U.S. Attorneys Seth Wilkinson and Jehiel I. Baer for the Western District of Washington are prosecuting the case.
Individuals who believe they may have been a victim, in this case, should visit www.fbi.gov/hashflare for more information.
An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
