Two Estonian Citizens Arrested in $575 Million Cryptocurrency Fraud and Money Laundering Scheme
Two Estonian citizens, Sergei Potapenko and Ivan Turõgin, 37, were arrested in Tallinn, Estonia, on an 18-count indictment for their alleged involvement in a $575 million cryptocurrency fraud and money laundering conspiracy.
According to the indictment, Potapenko and Turõgin 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.”
The indictment was returned by a grand jury in the Western District of Washington on October 27 and unsealed today.
According to the indictment, the defendants claimed that HashFlare was a massive cryptocurrency mining operation. Cryptocurrency mining is the process of using computers to generate cryptocurrency, such as Bitcoin, for profit. Potapenko 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. HashFlare’s website enabled customers to see the amount of virtual currency their mining activity had supposedly generated. Customers from around the world, including western Washington, entered into more than $550 million worth of HashFlare contracts between 2015 and 2019.
According to the indictment, these contracts were fraudulent. HashFlare allegedly did not have the virtual currency mining equipment it claimed to have. HashFlare’s equipment allegedly performed Bitcoin mining at a rate of less than one percent of the computing power it purported to have. When investors asked to withdraw their mining proceeds, Potapenko and Turõgin were not able to pay the mined currency as promised. Instead, they either resisted making the payments, or paid off the investors using virtual currency the defendants had purchased on the open market.
Sergei Potapenko and Ivan Turõgin are currently pending trial for the alleged cryptocurrency fraud and money laundering scheme. The indictment charges them with 18 counts, including conspiracy to commit wire fraud, wire fraud, conspiracy to commit money laundering, and money laundering.
Defendant: Sergei Potapenko and Ivan Turõgin
Criminal Charges: 18-count indictment for $575 million cryptocurrency fraud and money laundering conspiracy
City and State: Tallinn, Estonia
Date: October 27, 2023
Sentence or Outcome: Pending trial
Dollar Amounts: $575 million
Key Facts
- State: Washington
- Category: Cybercrime|Fraud & Financial Crimes
- Source: DOJ Press Release â†â€â€
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