Estonian authorities have arrested two suspects, accused of running a $575 million cryptobank and fake cloud mining scam. These pseudo projects named Plobybius and HashFlare respectively were actually Ponzi schemes.
Two suspects arrested in $575 million scam
The U.S. Department of Justice revealed earlier this week that Estonian authorities have arrested Sergei Potapenko and Ivan Turõgin. The two individuals are the main suspects in a fake cloud mining scam called HashFlare.
In addition to that, they are also accused of setting up a fake cryptobank project named Polybius Bank. For these two frauds, the amount of damage is said to be $575 million, taken from investors around the world in a Ponzi scheme.
Through international cooperation with Estonia, the FBI was able to conduct the investigation along with other law enforcement agencies. In addition, the grand jury in the Western District of Washington indicted the defendants on 18 counts of all the acts charged.
A scam based on cloud mining and cryptobanking
As previously mentioned, Sergei Potapenko and Ivan Turõgin’s scam was based on two components: cloud mining with Hashflare and a crypto bank with Polybius.
In reality, neither of the two projects had any real foundation and they were based on nothing more or less than wind.
As far as cloud mining is concerned, this concept consists in providing funds to a cryptocurrency mining company. These funds will allow to finance equipment and the contract of a predetermined duration allows to recover its investment with a capital gain realized by the product of the mining.
However, the U.S. Justice argues that HashFlare, which operated between 2015 and 2019, had less than 1% of the mining power they claimed to have. Even worse, the few customers who could have withdrawn their money would have actually been paid with cryptocurrencies purchased at the market and not through hypothetical mining rewards.
For its part, Polybius, which was born in 2017 and also claimed to offer returns on cryptocurrencies, never materialized or paid out any returns. Furthermore, both defendants allegedly laundered the stolen money by reinvesting it in real estate and luxury cars through shell companies, among other things.
This story is a reminder that in an environment that seems as complex on the surface as cryptocurrencies, several malicious actors will play on it, in order to tout revolutionary promises in order to make money on the back of investors.