- The co-founders of HashFlare have admitted to fraud over the project
- Sergei Potapenko and Ivan Turõgin pleaded guilty to orchestrating a $577 million cryptocurrency fraud scheme through the company
- The duo admitted to defrauding hundreds of thousands of investors worldwide through their company, HashFlare, by misrepresenting their cryptocurrency mining capabilities
HashFlare founders Sergei Potapenko and Ivan Turõgin, both 40-year-old Estonian citizens, have admitted that the company was a massive Ponzi scheme. HashFlare purported to be a cloud mining operation but ended up defrauding investors of $577 million, leading to the pair’s arrest in 2022. Potapenko and Turõgin are now awaiting sentencing, which could result in up to 20 years of imprisonment for each.
Pie In the Sky, Not Cloud Mining
Between 2015 and 2019, Potapenko and Turõgin promoted HashFlare as a lucrative cryptocurrency mining service, offering contracts that promised investors a share of the profits from their mining activities. However, court documents reveal that HashFlare lacked the necessary computing power to deliver on these promises, possessing less than 1% of the claimed mining capacity.
To maintain the illusion of profitability, the company provided investors with falsified data through a web-based dashboard, showcasing non-existent mining returns. Instead of utilizing investor funds for legitimate mining operations, Potapenko and Turõgin diverted the money to purchase luxury vehicles, real estate, and other personal investments. When investors sought to withdraw their supposed profits, the duo either delayed payments with various excuses or fulfilled requests using cryptocurrencies bought from other sources, rather than from mining proceeds.
Arrest and Extradition
HashFlare shuttered operations in 2018, at which point complaints began to come in from duped investors. Following their arrest in Estonia in November 2022, the pair were subsequently extradited to the United States to stand trial. They first appeared in court last June where the plethora of charges were read to them, including conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering.
As part of their plea agreements, the pair have consented to forfeit assets valued at over $400 million, which will be used to compensate victims of the scheme. Potapenko and Turõgin are scheduled for sentencing on May 8, 2025, in a Seattle federal court where each faces a maximum sentence of 20 years in prison.
