- US Department of Justice describes new scam as “truly astounding”
- Scope of fraudulent project points to new approach by criminals
- Court documents reveal a huge banking, money-laundering, crypto-mining, and Ponzi scheme rolled into one
US Department of Justice has announced an 18-count indictment against two 37-year-olds accused of constructing a $575 million cryptocurrency fraud and money laundering network. Estonians Sergei Potapenko and Ivan Turõgin allegedly defrauded hundreds of thousands of victims using a scheme with so many different facets that the authorities described it as “truly astounding.”
The international criminal web used new approaches and technologies and is notable for having a particularly benign entry level into the scam. Unsuspecting victims were often drawn into the network by signing up for a scheme relating to the mining of cryptocurrencies.
While cryptocurrencies are unregulated, the crypto-mining sector is well established and is a legitimate way of making a return for some investors. Unfortunately, for many, the scheme operated by Potapenko and Turõgin quickly turned into something else.
High-Tech Tools for Age-Old Scams
After being lured into investing in equipment rental for a mining service called HashFlare, unsuspecting victims were led down a trail which took them to a virtual currency bank called Polybius Bank.
The problem with Polybius Bank is that it wasn’t a bank. Nor did it pay clients the promised dividend returns. Instead, it formed the first step of a money-laundering Ponzi scheme involving shell companies set up to divert $575m to finance the founders’ lifestyle of luxury cars and real estate.
Concerned regulators have highlighted how the scam blended incentives plausible at face value with new tech processes.
The HashFlare website was set up to allow investors to monitor the amount of funds they were supposed to receive for their investment in the crypto mining operation. Withdrawals were pushed back or ultimately made using coins bought on the open market rather than via the alleged mining operation.
The Polybius side of the operation was convincing enough to kickstart its operations with seed capital from investors totalling $25m.
The net closed on Potapenko and Turõgin after US citizens became embroiled in their scheme. The Department of Justice has charged both men with conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering.
If convicted, both men each face a maximum penalty of 20 years in prison, but for other investors, the scheme is a reminder of how scams are constantly morphing in their efforts to claim more victims.
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