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FBI Arrests Two Estonian Citizens In $575 Million Crypto Fraud And Money Laundering Scheme

FBI has arrested the two founders of Bitcoin cloud miner HashFlare over their alleged involvement in a $575 million crypto fraud conspiracy.

HashFlare was a cloud mining company created in 2015, which purported to allow customers to lease the company's hashing power in order to mine cryptocurrencies and gain an equivalent share of its profits.

According to a statement from Justice Department, the two Estonian citizens, , Sergei Potapenko and Ivan Turõgin, both 37, were arrested in Tallinn, Estonia, on Sunday, November 20, on an 18-count indictment for their alleged involvement in a $575 million cryptocurrency fraud and money laundering conspiracy.

According to court documents, the duo 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," said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department's Criminal Division. "The department is committed to preventing the public from losing more of their hard-earned money to these scams and will not allow these defendants, or others like them, to keep the fruits of their crimes."

According to the indictment, Potapenko and Turõgin claimed that HashFlare was a massive cryptocurrency mining operation. Potapenk and Turõgin offered contracts which, 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. Customers from around the world, including western Washington, entered into more than $550 million worth of HashFlare contracts between 2015 and 2019.

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