Two Estonian nationals have been arrested for alleged involvement in crypto-related fraud and money laundering activities worth some $575m.
The two were arrested in Tallinn, Estonia, on Sunday on an 18-count indictment that involved a crypto mining service called HashFlare, and a fictitious “virtual currency bank” called Polybius Bank, a press release from the US Justice Department said.
The two suspects were identified as Estonian citizens Sergei Potapenko and Ivan Turõgin, both 37 years old.
According to the Justice Department, the two suspects induced victims to enter into “fraudulent contracts” for crypto mining equipment and invest money in HashFlare, which was promoted as a hosted crypto mining service.
Additionally, the perpetrators got victims to invest in Polybius Bank. Unfortunately for the victims, Polybius “was never actually a bank and never paid out the promised dividends,” the Justice Department said.
Polybius has, in the past, issued an ERC-20 token known as PLBT. The token price is down by approximately 95% since its launch in 2017 and has a current market capitalization of just $1.6m, according to CoinMarketCap data.
The centralized exchange HitBTC listed PLBT in January 2020.
$575 million spent on luxury goods
In total, the victims paid more than $575m to Potapenko and Turõgin’s companies, and the money was then laundered through shell companies and finally spent on various luxury items.
“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,” commented Nick Brown, U.S. Attorney for the Western District of Washington.
He went on to explain that the illegal operation resembled a classic Ponzi where early investors were paid off with money from those who joined in later.
“They tried to hide their ill-gotten gain in Estonian properties, luxury cars, and bank accounts and virtual currency wallets around the world. U.S. and Estonian authorities are working to seize and restrain these assets and take the profit out of these crimes,” Brown said.
Individuals who believe that they may have been victims in the case are asked to go to the FBI’s website at fbi.gov/hashflare for more information.
The FBI is investigating the case.