Crypto kidnap and torture suspects John Woeltz and William Duplessie are now indicted on multiple felony counts, and prosecutors are addressing TMZ’s wild videos showing their alleged victim partying and having sex … calling it an elaborate smoke screen.

In a Manhattan courtroom Wednesday, crypto bros Woeltz and Duplessie were accused of staging those kinky videos to make it seem like they were not holding Italian businessman Michael Carturan captive.

Prosecutors say the duo arranged for Carturan to be photographed in those party pics and sex scenes to sell the lie that he was just living it up.

They also describe Carturan as basically being under house arrest — only allowed out with a guard. As for Carturan’s escape … prosecutors say Woeltz told him to transfer the money, and when he went to grab a device to complete the transaction … he seized the moment to flee.

Woeltz and Duplessie are now charged with kidnapping, assault, coercion, attempted grand larceny, and criminal possession of a weapon.

ICYMI… the suspects allegedly lured Carturan to their rented Manhattan townhouse and kept him trapped there for over 17 days, trying to force him to cough up his Bitcoin password.