In brief

  • US courts indicted two Russian nationals on five charges related to manipulation and theft of cryptocurrencies.
  • The duo managed to steal over $16.5 million using phishing and spoofing techniques.
  • The US Secret Service has recovered some of the stolen funds, but the accused remain at large.

A US grand jury indicted two Russian nationals, Danil Potekhin and Dmitrii Karasavidi, for allegedly defrauding three cryptocurrency exchanges and their customers to the tune of $16.8 million in various cryptocurrencies, as per a release by the US Department of Justice on Wednesday.

The plan was apparently hatched by the perpetuators back in 2017. To conduct their crimes, the duo used “phishing” and “spoofing” tactics, which typically involve the creation of fake web domains and fake identities to trap investors and steal their login and personal information. Such frauds have reportedly accounted for over $1.9 billion in losses worldwide in 2019 alone.

Phishing for millions

As per the allegations, Potekhin created over 13 fake web domains for an unnamed US-based crypto exchange to conduct his alleged crimes. He managed to get 150 customers of the exchange to input their user identification and passwords on those fake domains, effectively stealing the information to their actual accounts in that manner.

Potekhin and Karasavidi then used the stolen credentials from the victims to access their accounts and withdraw their cryptocurrency without authorization. They also used the victims’ personal details to create more fictitious accounts and used these to withdraw even larger sums of cryptocurrencies from their without authorization, the document added.

But that was not all. The criminal duo also allegedly used a sophisticated market manipulation scheme, starting July 2017, that utilized the stolen credentials of the same crypto exchange for a manipulation attack that targeted three customers.

The court document detailed the manipulation process as follows: Potekhin and Karasavidi used fictious accounts to purchase GAS, a token that allows users to transact on the Ethereum network, prior to the manipulation.

The fraudsters allegedly used GAS tokens to manipulate the market. Image: Shutterstock

Then, on October 29, 2017, the duo used three compromised victim accounts—with a cumulative value of over $5 million at that time—to purchase GAS at the same time in their accounts at massively inflated values.

The duo, and their co-conspirators, then converted their manipulated, and artificially highly valued, GAS tokens to Bitcoin and other digital currencies, which caused the manipulated value of GAS to quickly plummet and cause the value of GAS tokens on the victim accounts to be worthless. This allegedly led to losses of effectively $5 million loss to the three victims, the document said.

More frauds, and then a catch

The indictment alleged other similar fraud schemes took place between October 2017 and March 2018, resulting in theft attacks targeting customers of two other crypto exchanges. The alleged fraudsters were able to gain over $11 million with the two loots, and $16.5 million overall, the document said.

But their luck didn’t run long. US authorities were able to track some of the illegal funds to Karasavidi’s crypto accounts, and then to the perpetuators identities. At press time, Potekhin and Karasavidi have been charged on five counts, ranging from wire fraud to market manipulation.

Some of the stolen money was regained as well. The document said that the US Secret Service has custody of $6 million and several million dollars' worth of various cryptocurrencies in connection with the crime.

Meanwhile, US Attorney David Anderson cautioned against users stashing large amounts of money on crypto exchanges. He said, “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."