The Department of Justice (DOJ) revealed that Potapenko and Turõgin, both 39 years old, were apprehended in Tallinn, Estonia, and have been charged with 18 counts according to an indictment filed in the Western District of Washington.

The indictment accuses the duo of enticing investors by offering virtual currency mining rights in exchange for a fee. However, it has been revealed that they carried out their fraudulent operation by using fake invoices, fabricated documents, and misrepresenting their crypto mining capacity. In reality, the defendants possessed less than 1% of the mining capacity they claimed to possess.

Authorities unmasked the fraudulent scheme, which involved Potapenko, Turõgin, and unnamed associates, who utilized the funds received to invest in real estate properties in Estonia, luxurious cars, and extravagant gifts. U.S. Attorney Nick Brown of the Western District of Washington expressed astonishment at the magnitude of the alleged scheme, stating that the defendants exploited the allure and mystery surrounding cryptocurrency to execute a massive Ponzi scheme.

Efforts are now underway to seize and restrain the ill-gotten assets, including Estonian properties, luxury cars, bank accounts, and virtual currency wallets worldwide, in collaboration with U.S. and Estonian authorities. The FBI is actively investigating the fraud case and also soliciting victims to come forward.

The indictment reveals that Potapenko and Turõgin established a network of shell companies, bank accounts, and virtual asset service providers to funnel fraudulently obtained funds from victims under the pretense of buying mining hardware. They founded a company named HashCoins in Estonia in December 2013, marketing the firm's mining equipment for Bitcoin and other digital assets. However, it was later discovered that HashCoins did not manufacture its equipment but instead purchased, built, and resold parts from other companies.

As early as 2014, HashCoins faced numerous customer complaints and struggled to fulfill refund requests and new orders. By 2015, the defendants informed some clients that undelivered mining equipment would be operated remotely under the name HashFlare. Customers were offered mining contracts that would entitle them to a percentage of profits from the operation. However, the actual mining activity conducted by HashFlare turned out to be a mere fraction of what was promised.

The complaint further alleges that when participants attempted to withdraw their supposed returns on the crypto-mining operations, they encountered obstacles and were often either blocked from withdrawing or limited to small amounts. To sustain their scheme, Potapenko and Turõgin bought virtual currency on the open market and paid it out to investors, ultimately becoming a Ponzi scheme.

In 2017, the duo proceeded to establish another entity called Polybius, presented as a digital bank. Through an initial coin offering, Polybius managed to raise $25 million from external investors. However, investigators revealed that majority of the funds were transferred to accounts controlled by Potapenko and Turõgin. No digital bank was ever constructed, and investors never received any dividends, as alleged by authorities.

Potapenko and Turõgin were initially arrested in 2022 but were extradited to the United States in April 2024 after appealing the initial ruling. The Estonian National Criminal Police's Oskar Gross, head of the Cybercrime Bureau, described this investigation as one of the largest fraud cases in Estonia's history, highlighting the sheer volume and complexity of the fraudulent operation.

As legal proceedings continue, authorities aim to bring justice to the victims by tracking down the misappropriated funds and dismantling the criminal network responsible for this extensive cryptocurrency mining fraud.