Two Estonian men have been arrested for their alleged involvement in a series of cryptocurrency and money laundering scams. According to a preliminary count, the scammers swindled $575 million from "hundreds of thousands of victims," while the suspects used their ill-gotten gains to buy real estate and luxury cars.

The two Estonian nationals, identified as Sergei Potapenko and Ivan Turogin, both 37, were arrested in Tallinn, Estonia, following a joint investigation by U.S. and Estonian law enforcement. The pair are accused of defrauding hundreds of thousands of victims between December 2013 and August 2019 along with four other associates living in Estonia, Belarus and Switzerland.

"The scale and scope of the alleged fraud is truly shocking," U.S. Attorney Nick Brown said in a statement. "These defendants exploited the appeal of cryptocurrencies and the mystique surrounding cryptocurrency mining to run a massive Ponzi scheme."

A crypto Ponzi scheme that ran for nearly nine years

It is understood that the two men carried out a series of scams through a fake business called HashCoins, which began around December 2013. The Estonia-based company claims to manufacture and sell bitcoin and other virtual currency mining hardware and equipment to a global customer base, and requires customers to pay in full when ordering the equipment. In fact, HashCoins sometimes resells mining equipment made by others, but it never makes its own components and doesn't have the ability to deliver the promised hardware to paying customers.

The men also allegedly used this second fake business to lure new customers to purchase virtual currency mining capabilities using credit cards, bank wire transfers, and virtual currency transfers, thereby rewarding some early investors while also enriching their own wallets. Potapenko, Turogin and others eventually made more than $550 million through this part of the scheme, which the indictment describes as a "Ponzi scheme."

By April 2017, the pair had created another fake company: a virtual currency Bank called Polybius Bank, raising funds through an initial coin offering (ICO). According to court documents, they even issued a press release claiming that the ICO had raised more than $6 million and that the pair had raised at least $25 million from third-party investors through the ICO. The men then pooled victim funds "through a complex network of shell companies, bank accounts, virtual asset service providers, and virtual currency wallets" to help them launder money.

The funds were transferred to their personal bank accounts and virtual currency wallets instead of being used to fund Polybius Bank, and the criminals never paid any dividends to investors and never formed the bank. Instead, the fraudsters used the illicit funds to buy at least 75 real estate properties, luxury vehicles, and invest in thousands of cryptocurrency mining machines.

Authorities in the United States and Estonia are trying to track down the money, and two fraudsters have been charged with 16 counts of wire fraud and one count of conspiracy to launder money. If convicted, the two men face up to 20 years in prison.

Source: FX110