Russian Nationals Indicted for Conspiracy to Defraud Multiple Cryptocurrency Exchanges and Their Customers | USAO-NDCA

SAN FRANCISCO – A federal grand jury indicted Russian nationals Danil Potekhin a/k/a cronuswar and Dmitrii Karasavidi a/k/a Dmitriy Karasvidi, charging them with a wide range of crimes in connection with an alleged conspiracy to defraud three cryptocurrency exchanges and their customers of cryptocurrency valued at the time of the theft and manipulation at a minimum of $16.8 million in cryptocurrency, announced United States Attorney David L. Anderson and U.S. Secret Service Criminal Investigative Division Special Agent in Charge David Smith.  In addition, the United States Attorney filed documents seeking the civil and criminal forfeiture of assets traceable to the alleged crimes.  Further information about the announcement can be found here: https://youtu.be/RGAIsqmixdg.

The Superseding Indictment, filed February 18, 2020, was unsealed earlier today.  According to the Superseding Indictment, Potekhin, of Voronezh, Russia, created numerous web domains that mimicked those of legitimate virtual currency exchanges.  This tactic used a combination of “phishing” and “spoofing” to exploit Internet users’ trust in known companies and organizations to fraudulently obtain their login credentials, including email addresses, password information, and other personal information.  When unwitting customers accessed the fraudulent websites and entered their login information, Potekhin and his co-conspirators stole the victims’ credentials and gained access to their cryptocurrency accounts, from which they stole funds or which they used to manipulate cryptocurrency markets for their own gain.

“My warning to internet fraudsters is that we will prosecute internet frauds against U.S. citizens regardless of where those frauds originate,” said U.S. Attorney Anderson.  “My warning to the public is that digital currency exchanges are not like banks.  The security of digital currency exchanges is only as good as your own vigilance.  While law enforcement will do everything within our power to protect you, you must also protect yourself.”

“Since its inception in 1865 to combat U.S. currency counterfeiting, the Secret Service has remained committed to safeguarding the Nation’s financial infrastructure,” said Special Agent in Charge Smith. “The Secret Service mission has evolved to combat cyber fraud by tracing and seizing fraudulently obtained virtual currencies. These recent actions highlight the efforts of law enforcement to provide attribution to cybercriminals wherever they may reside.”

The Superseding Indictment describes similar attacks perpetrated against the customers of three cryptocurrency platforms, two of which are based in the United States, and one based abroad.  Victims of the attacks are alleged to have included people residing in the Northern District of California.

The Superseding Indictment describes a number of complex fraud schemes used by the defendants and their co-conspirators to maximize the value of the cryptocurrency that they stole from the customers of these digital currency exchanges.  The first fraud scheme, referred to as a theft attack in the Superseding Indictment, was a scheme to steal digital currency from as many users of a U.S.-based digital currency exchange as possible in a short amount of time.  Beginning in July 2017, Potekhin created and controlled at least 13 separate fake domains for this digital currency exchange.  Using the fake domains, the defendants induced more than 150 victim customers of the exchange to input their user identification and passwords.  Potekhin and Karasavidi, of Moscow, also created multiple fictitious accounts with the same digital currency exchange, and used stolen information from at least three individuals from the United Kingdom to create three of those accounts.  The defendants then used the stolen credentials from the victim customers to access the victims’ accounts in August 2017 and withdraw digital currency without authorization.  By linking the fictitious accounts to the accounts of victim customers, the defendants were able to withdraw larger sums of digital currency from victim accounts without authorization. 

The Superseding Indictment further describes a sophisticated market manipulation scheme that began in July 2017 using the stolen customer credentials of the same U.S.-based digital currency exchange and culminated in a manipulation attack that targeted three victim customers.  The defendants first created a number of fictitious accounts on the same platform and each account purchased an inexpensive digital currency known as GAS prior to the manipulation.  Then, on October 29, 2017, the defendants took control of the three victim customer accounts and used the digital currency contained in those accounts, with a value of over $5 million at that time, to purchased GAS at the same time, which increased demand and price.  The defendants and their co-conspirators then quickly converted the digital currency in their fictitious accounts from GAS to Bitcoin and other digital currencies, causing the value of GAS to plummet and leaving the value of GAS that remained in the victim customer accounts worthless, causing a loss to these three victims of approximately $5 million.

The Superseding Indictment also alleges similar fraud schemes that took place between October 2017 and March 2018, and which resulted in theft attacks targeting victim customers of another U.S.-based digital currency exchange and one based abroad.  The value of the stolen digital currency at the time of the thefts was over $11 million.

The Superseding Indictment alleges the defendants laundered the proceeds of the attacks and attempted to conceal the nature and source of the digital currency by transferring them in a layered and sophisticated manner through multiple accounts.  Ultimately, a significant amount of the stolen digital currency was deposited into Karasavidi’s account.

In sum, Potekhin and Karasavidi have been charged with conspiracy to commit computer fraud and abuse, in violation of 18 U.S.C. § 1030(b); computer fraud, in violation of 18 U.S.C. § 1030(a)(4); conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349; money laundering conspiracy, in violation of 18 U.S.C. § 1956(h); and two counts of aggravated identity theft, in violation of 18 U.S.C. § 1028A(a)(1).

An indictment merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.  The defendants remain at large.  If convicted, the defendants face the following maximum statutory penalties:

Charge

Statute

Maximum Penalties

Conspiracy to Commit Computer Fraud and Abuse

18 U.S.C. § 1030(b)

(1) 10 years’ imprisonment; (2) Maximum of 3 years of

supervised release;

(3) $250,000 fine or twice the gross gain or twice the gross

Loss

Unauthorized Access to a Protected

Computer To Obtain Value

18 U.S.C. §§ 1030(a)(4) and (c)(3)(A)

(1) 5 years’ imprisonment;

(2) Maximum of 3 years of

supervised release;

(3) $250,000 fine or twice the gross gain or twice the gross

Loss

Conspiracy to Commit Wire Fraud

18 U.S.C. § 1349

(1) 20 years’ imprisonment; (2) Maximum of 3 years of

supervised release;

(3) $250,000 fine or twice the gross gain or twice the gross

loss         

Conspiracy to Commit Money Laundering

18 U.S.C. § 1956(h)

(1) 20 years’ imprisonment; (2) Maximum of 3 years of

supervised release;

(3) $250,000 fine or twice the gross gain or twice the gross

Loss

Aggravated Identity Theft

(2 counts)

18 U.S.C. § 1028A(a)(1)

Each count:

(1) 2 years’ imprisonment (to run consecutive to any other

term imposed);

(2) Maximum of 3 years of supervised release;

(3) $250,000 fine

or twice the gross gain or twice the gross loss

Any sentence following conviction would be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

The U.S. Attorney also filed an action for forfeiture of millions of dollars of virtual currency that allegedly are traceable to the defendants’ crimes.  According to the forfeiture complaint, law enforcement has seized, and the U.S. Secret Service currently is in custody of, over $6 million in U.S. dollars, and several million in digital currency, the value of which changes based on the market.

In addition to the criminal charges, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced it has issued sanctions against the two Russian nationals.  The Treasury Department’s announcement can be viewed here: https://home.treasury.gov/news/press-releases/sm1123.

The prosecution and civil forfeiture actions are being handled by the Special Prosecutions Section and the Asset Forfeiture Unit of the Office of the U.S. Attorney for the Northern District of California.  The prosecution is the result of an investigation by the U.S. Secret Service San Francisco Field Office.  The Justice Department’s Office of International Affairs and the Dutch National High Tech Crime Unit provided investigative assistance.

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