FBI arrests two Estonian men in $575M crypto fraud, money laundering scheme

    The FBI and Estonian police arrested two Estonian citizens Sunday for their alleged involvement in a $575 million cryptocurrency fraud scheme.

    The two co-creators of the defunct Bitcoin cloud mining service HashFlare have been arrested in Estonia for their alleged role in a $575 million crypto fraud scheme.

    HashFlare, founded in 2015, claimed to be a cloud mining service where customers could lease the company’s hashing power in exchange for a proportional share of the company’s cryptocurrency mining profits.

    Though it was widely recognized as a market leader, the company ceased a significant portion of its mining operations in July 2018.

    U.S. DOJ claims in a statement based on court documents that the entire mining operation was part of a “multi-faceted scheme” that “defrauded hundreds of thousands of victims.” HashFlare was used to dupe people into signing “fraudulent equipment rental contracts,” and another website, Polybius Bank, was used to scam people out of money by pretending to be a digital currency bank.

    The pair is also accused of conspiring to launder their “criminal proceeds” through 75 properties, six luxury vehicles, cryptocurrency wallets and thousands of cryptocurrency mining machines.

    U.S. Attorney Nick Brown for the Western District of Washington called the size and scope of the alleged scheme “truly astounding.”

    To pull off their massive Ponzi scheme, “these defendants capitalized on both the allure of cryptocurrency and the mystery surrounding cryptocurrency mining,” he explained. Two of the co-founders of HashFlare have been charged with 20 years in prison each for wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering through the use of shell companies and fraudulent invoices and contracts.

    Both defendants are accused of falsely representing HashFlare as a “massive cryptomining operation” in the indictment. To make up for the fact that it wasn’t mining at the rate it claimed to be, and the company allegedly paid out withdrawals by buying Bitcoin from other sources.

    HashFlare stopped offering Bitcoin mining services in July 2018, citing revenue difficulties caused by market volatility.

    Customer prepayments for the remaining portion of the annual contract were not refunded. All of the other cryptocurrencies in the exchange’s portfolio kept functioning normally. Many people speculated that the company was fraudulent, but no one could ever provide official proof of the claims.

    HashFlare hasn’t updated its website or social media since an August 9 post that said they were stopping the sale of ETH contracts because their “current capacity has been sold out.”

    Nothing was made publicly known about what had happened, and HashFlare mysteriously vanished, despite the company’s assurances that operations would resume in the “very near future.”

    In light of allegations of fraud committed by HashFlare, HashCoins OU, and Polybius, the FBI has opened an investigation into the matter and is requesting information from affected customers.

    A grand jury in the Western District of Washington returned an 18-count indictment against Potapenkos and Turgins on October 27; it was unsealed on November 21.

    Share the Article