The defendants encouraged the victims to invest in the company Polybius, under the pretext that it is a bank specializing in virtual currencies and that the investors will receive their profit in the form of dividends. The two raised about $25 million in this scam and transferred most of the money to other bank accounts and virtual currency wallets under their control. In practice, no such bank was established and no dividends were paid.
According to the indictment, the two defendants alleged that HashFlare was a massive cryptocurrency mining venture. As part of the scam, Potpanko and Torogin offered contracts that allowed customers to rent percentages of the coin mining venture in exchange for virtual coins produced by their share of the venture. Through HashFlare’s website, customers could see the amount of virtual currency their mining operations supposedly generated.
The indictment stated that the contracts are fake, and contrary to the defendants’ claim, the alleged enterprise did not have the appropriate equipment for virtual currency mining. The equipment allegedly in the possession of the enterprise mined Bitcoin at a rate of less than one percent of the capabilities of the equipment claimed by the enterprise that owned it.
When investors asked to withdraw their proceeds, the defendants refused to pay or alternatively bribed the investors with virtual currencies they bought on the open market and not with the coins the investors mined. The project closed its operations in 2019.
The victims paid over $575 million to companies owned by Potpanko and Torogin. The indictment accuses the two of laundering the proceeds of the criminal enterprises through the use of straw companies and fictitious invoices and contracts. The money laundering allegedly involved at least 75 real properties, six luxury vehicles, crypto wallets, and thousands of cryptocurrency mining machines. If convicted, the two face up to 20 years in prison.
For further reading on the US Department of Justice website