Two Estonian Ponzi scheme fraudsters were arrested in Tallinn, Estonia, on Nov. 21, 2022, for duping investors out of $575 million.
Sergei Potapenko and Ivan Turõgin lured victims through false crypto mining equipment rental agreements and investments in a crypto bank that failed to pay dividends.
Sergei Potapenko and Ivan Turõgin bought luxury items with investor funds
Between 2015 and 2019, Sergei Potapenko and Ivan Turõgin offered customers the opportunity to earn cryptocurrency mining revenue by agreeing to rent out hashrate from an alleged mining operation called HashFlare. Mining is securing a so-called proof-of-work blockchain by solving a mathematical puzzle. The miner earns revenue from newly-minted crypto coins and transaction fees.
When customers asked for their share of the mining revenue, Sergei Potapenko and Ivan Turõgin resisted or paid them with crypto purchased on the open market.
Additionally, the fraudsters offered people the opportunity to invest in a new crypto bank, Polybius, with promises that they would receive dividends from any profit the bank made. They duped investors out of at least $25 million and siphoned the money into other bank accounts and crypto wallets without paying dividends.
The pair also laundered funds through shell corporations to buy luxury vehicles and real estate in Estonia.
“The size and scope of the alleged scheme is truly astounding. These defendants capitalized on both the allure of cryptocurrency and the mystery surrounding cryptocurrency mining, to commit an enormous Ponzi scheme,” said the attorney for the Western District of Washington, Nick Brown. “They lured investors with false representations and then paid early investors off with money from those who invested later.”
Potapenko and Turõgin each face a maximum of 20 years in jail for conspiracy to launder money using shell corporations, wire fraud, and conspiracy to commit wire fraud.
Ponzi schemes in 2022
After the DoJ announced the arrest of the two Estonians, several Twitter users compared the scheme to the collapse of the Bahamian exchange FTX.
In Aug. 2022, the U.S. Securities and Exchange Commission charged eleven operators of a Ponzi scheme called Forsage. The criminals initially told customers to deposit their money into smart contracts on the Binance Smart Chain, Ethereum, and Tron. They paid new investors with funds from old investors.
The U.S. Justice Department recently received a guilty plea from Silk Road fraudster James Zhong on Nov. 7, 2022. Zhong tricked Silk Road’s payment systems into depositing 50,000 BTC into his nine accounts on the platform.
Silk Road was a notorious online darknet marketplace that sold illegal goods and was one of the first commercial applications for Bitcoin payments before the FBI shut it down. Its founder, Ross Ulbricht, is currently doing jail time.