Two Estonian nationals will make their initial appearance in the U.S. District Court in Seattle at 5:00 p.m. EDT today following their extradition from Estonia to the United States to face criminal charges related to their roles in a massive multi-faceted cryptocurrency Ponzi scheme.
Sergei Potapenko and Ivan Turõgin, both 39, were arrested on Nov. 20, 2022, in Tallinn, Estonia, on an 18-count indictment filed in the Western District of Washington.
According to the indictment, Potapenko and Turõgin allegedly induced hundreds of thousands of victims to purchase contracts entitling them to a share of virtual currency mined by the defendants’ purported cryptocurrency mining service, HashFlare. Potapenko and Turõgin allegedly claimed HashFlare operated a massive cryptocurrency mining operation. Cryptocurrency mining is the process of using computers to generate cryptocurrency, such as Bitcoin, for profit. Potapenko and Turõgin allegedly offered contracts which, for a fee, allowed customers to rent a percentage of HashFlare’s purported mining capacity. In exchange, HashFlare agreed to pay out the virtual currency produced by the contract holders’ portion of the operation. Between 2015 and 2019, customers from around the world allegedly entered into more than $550 million worth of HashFlare contracts.
However, HashFlare allegedly did not have the virtual currency mining equipment it professed to have and engaged in less than one percent of the Bitcoin mining activity it claimed. According to the indictment, when investors asked to withdraw their mining proceeds, Potapenko and Turõgin could not pay the investors with the mined currency they had promised. Instead, Potapenko and Turõgin either resisted making the payments or paid off the investors using virtual currency they purchased on the open market—not currency they had mined. According to the indictment, Hashflare continued offering contracts for virtual currency mining through August 2019.
In May 2017, Potapenko and Turõgin offered investments in a company called Polybius, which they said would form a bank specializing in virtual currency. Potapenko and Turõgin allegedly promised to pay investors dividends from Polybius’ profits. Potapenko and Turõgin raised at least $25 million and used approximately $7 million of HashFlare proceeds in this scheme and allegedly transferred most of the money to other bank accounts and virtual currency wallets they and their co-conspirators controlled. Polybius never formed a bank or paid any dividends.
Victims of the defendants’ schemes paid more than $575 million to Potapenko's and Turõgin's companies. Potapenko and Turõgin allegedly used shell companies and phony contracts and invoices to launder fraud proceeds and purchase real estate and luxury cars. The indictment alleges that the money laundering conspiracy involved at least 75 real properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.
Potapenko and Turõgin are charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering. If convicted, they each face a maximum penalty of 20 years in prison on each count.
Principal Deputy Assistant Attorney General Nicole M. Argentieri; U.S. Attorney Tessa M. Gorman for the Western District of Washington; Assistant Director Michael D. Nordwall of the FBI’s Criminal Investigative Division; and Special Agent in Charge Richard A. Collodi of the FBI Seattle Field Office made this announcement.
The FBI is investigating this case.
The United States thanks Estonia's Cybercrime Bureau for its support with this investigation while acknowledging significant assistance from Justice Department’s Office of International Affairs in securing arresting extradition procedures along with facilitation from U.S Customs & Border Protection regarding defendants' entrance into US territory
Trial Attorneys Adrienne E Rosen & David Ginensky from Criminal Division Money Laundering Asset Recovery Section alongside Assistant US Attorneys Seth Wilkinson Sok Jiang representing Western District Washington are prosecuting this case under asset forfeiture handled by Jehiel Baer also representing Western District Washington
Individuals who believe they may have been victims should visit www.fbi.gov/hashflare
An indictment is merely an allegation All defendants presumed innocent until proven guilty beyond reasonable doubt court law
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