The two founders of the now-defunct Bitcoin cloud miner HashFlare have been arrested in Estonia over their alleged involvement in a $575 million crypto fraud conspiracy.
HashFlare was a cloud mining company created in 2015, which purported to allow customers to lease the company's hashing power in order to mine cryptocurrencies and gain an equivalent share of its profits.
The company was seen as one of the leading names in the business at the time, but shut down a large portion of its mining operations in Jul. 2018.
However, according to a statement from the United States Department of Justice citing court documents, the entire mining operation, run by founders Sergei Potapenko and Ivan Turõgin, was part of a "multi-faceted scheme" that "defrauded hundreds of thousands of victims."
This included convincing victims to enter into “fraudulent equipment rental contracts” through HashFlare and persuading other victims to invest in a fake virtual currency bank called Polybius Bank.
The pair is also accused of conspiring to launder their “criminal proceeds” through 75 properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.
U.S. Attorney Nick Brown for the Western District of Washington called the size and scope of the alleged scheme "truly astounding."
"These defendants capitalized on both the allure of cryptocurrency and the mystery surrounding cryptocurrency mining, to commit an enormous Ponzi scheme,” he said.
The HashFlare founders have been charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering using shell companies and fraudulent invoices and contracts and could face up to 20 years in prison if convicted.
The FBI is now investigating the case and is seeking information from customers who opted into the alleged fraudulent schemes of HashFlare, HashCoins OU and Polybius.
The 18-count indictment for Potapenkos and Turõgins alleged involvement was returned by a grand jury in the Western District of Washington on Oct. 27 and unsealed on Nov. 21.
The United States Senate Agriculture Committee has announced that Commodity Futures Trading Commission, or CFTC, chair Rostin Behnam will be one of the witnesses in a hearing exploring the collapse of crypto exchange FTX.
According to the Senate Agriculture Committee website, on Dec. 1, the full committee will listen to testimony from Behnam and presumably other individuals with information about the liquidity issues and subsequent downfall of FTX. The hearing, titled “Why Congress Needs to Act: Lessons Learned from the FTX Collapse,” will be one of the first in which U.S. lawmakers explore what happened with the major crypto exchange and former CEO Sam Bankman-Fried.
The U.S. House Financial Services Committee said on Nov. 16 that it will be holding a similar hearing “into the collapse of FTX and the broader consequences for the digital asset ecosystem” in December, but the event did not appear in the committee’s calendar at the time of writing. The committee said it expected to hear from Bankman-Fried, Alameda Research and Binance, but did not specifically mention testimony from federal regulators like those at the Securities and Exchange Commission (SEC) or CFTC.
Lawmakers on both sides of the aisle in both chambers of Congress as well as the White House have hinted at the need for regulatory clarity or additional regulations in the wake of FTX’s collapse. On Nov. 10, White House Press Secretary Karine Jean-Pierre suggested that “prudent regulation of cryptocurrencies is indeed needed” in response to crypto firms without proper oversight.
Since filing for bankruptcy and resigning as FTX’s CEO on Nov. 11, Bankman-Fried has become the target of global regulators investigating the exchange, including Turkey’s Financial Crimes Investigation Agency, authorities in the Bahamas and U.S. state and federal agencies. Reportedly still based in the Bahamas, Bankman-Fried may be extradited to the U.S. for questioning — it’s unclear whether he will be available to speak before either the House or Senate committee hearings.
An amendment was introduced to the Kenyan Capital Markets Law on Nov. 21 that would require those who own or deal in cryptocurrencies to provide the country’s Capital Markets Authority with information on their activities for tax purposes, local media reported. This is the first time Kenya has extended financial regulation to cryptocurrency.
Under the Capital Markets (Amendment) Bill, Kenyans would pay capital gains taxes to the Kenyan Revenue Authority when they sell or use digital currencies. Cryptocurrency held for less than a year would be subject to income tax, while after that, capital gains tax would apply. Kenya has an income tax that ranges from 10% to 30%. Banks already charge an excise duty of 20% on all commissions and fees on crypto trades.
The author of the bill, Member of Parliment Abraham Kirwa, said:
“The amendment will provide for […] the definition of digital currencies, its creation through crypto mining and provide for regulations around trading of digital currencies. […] The amendment will also outline responsibilities of persons or businesses trading in digital currencies, provide for its taxation, ownership and provide for promotion of innovation in this area.”
The bill would define digital currencies as securities, provide for the licensing of individual crypto traders and create a centralized electronic register of transactions in digital currencies in the country. It would also institute consumer protection measures, such as creating a fund “to protect investors from financial loss arising from the failure of a licenced broker or dealer” and privacy guarantees.
A Chainalysis survey released in September ranked Kenya 19th worldwide in cryptocurrency adoption and fifth in peer-to-peer trading. The proposed amendment comes simultaneously with a call by Kenyan President William Ruto to double the country’s tax base. The country has about 4 million cryptocurrency users. At about 8.5% of the population, that gives Kenya the world’s fifth-highest rate of ownership.
This Daily Dose was brought to you by Cointelegraph.