Estonian Nationals Plead Guilty in $577 Million Cryptocurrency Ponzi Scheme

Estonian nationals Sergei Potapenko and Ivan Turõgin, operators of the defunct cloud mining service HashFlare, pleaded guilty to a multifaceted $577 million cryptocurrency Ponzi scheme, as reported by the U.S. Department of Justice.

Background on HashFlare

HashFlare provided cloud mining services from 2015 to 2019, enabling users to mine cryptocurrencies like bitcoin and ether without owning physical mining hardware. Users purchased mining contracts to rent hash power from HashFlare’s infrastructure.

Misrepresentation of Mining Capacity

However, HashFlare lacked the hashrate capacity to conduct the majority of the mining it claimed. The service reportedly operated bitcoin mining at less than 1% of the computing power it advertised, showing falsified mining profits on its dashboard. Additionally, it encouraged investments in a fraudulent crypto bank named Polybius, which failed to pay dividends, leaving hundreds of thousands of victims worldwide, including in the U.S.

Closure of HashFlare

HashFlare suspended its mining services in 2018, ultimately shutting down operations while pocketing over $577 million in sales. Potapenko and Turõgin were arrested in Tallinn, Estonia in November 2022. They faced charges including conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering, later extradited to the U.S.

Potential Sentencing

The duo is facing up to 20 years in prison. They used proceeds from the fraud to acquire 75 real estate properties, six luxury vehicles, and maintain investment and crypto accounts. They each pleaded guilty to conspiracy to commit wire fraud and agreed to forfeit assets worth over $400 million to compensate victims through a forthcoming remission process.

Sentencing Date

Potapenko and Turõgin are scheduled to be sentenced on May 8. The Department of Justice expressed gratitude to the Estonian Police, Prosecutor General, and Ministry of Justice and Digital Affairs for their assistance in the investigation and extradition. The FBI Seattle field office led the investigation with support from U.S. officials and prosecutors.