HashFlare Co-Founders Plead Guilty to $575 Million Crypto Mining Fraud

The co-founders of HashFlare, a once-prominent crypto mining service, have pleaded guilty to conspiracy to commit wire fraud as part of a sweeping US crackdown on fraudulent digital asset schemes.

HashFlare Founders Plead Guilty in $575 Million US Crypto Fraud Case

The co-founders of HashFlare, a once-prominent crypto mining service, pleaded guilty to conspiracy to commit wire fraud in a sweeping US crackdown on fraudulent digital asset schemes.

Announced by the United States Department of Justice (DOJ) on March 8, the Estonian nationals, Sergei Potapenko and Ivan Turogin, admitted to orchestrating a massive $575 million fraud that misled investors about HashFlare’s mining operations and its related financial services. The duo stood before the US District Court for the Western District of Washington to admit to the crime.

The HashFlare founders have pleaded guilty to conspiracy to commit wire fraud in a sweeping US crackdown on fraudulent digital asset schemes. Here's a breakdown of the court filing and the key points:

HashFlare, launched in 2015, marketed itself as a cloud mining platform that allowed users to rent hashing power to mine cryptocurrencies. However, US prosecutors revealed that the company misrepresented its capabilities, operating more like a Ponzi scheme than a legitimate mining business.

According to court filings cited by the authorities, HashFlare only mined a fraction of the Bitcoin (BTC) it claimed to produce, while the bulk of customer funds were siphoned into shell companies controlled by Potapenko and Turogin. Investors were led to believe they were earning mining rewards, but in reality, payouts largely came from new deposits rather than actual mining profits.

The US authorities also highlighted a separate banking project, Polybius Bank, which was promoted by the duo. They convinced victims to invest over $25 million in the venture with the false promise of profit-sharing. Instead, the funds were laundered through real estate purchases and luxury assets across Europe, as disclosed by the DOJ.

The guilty pleas come after an extensive international investigation involving the Federal Bureau of Investigation (FBI), Estonian authorities, and US prosecutors. The DOJ has classified the case as one of the largest crypto fraud schemes ever prosecuted.

As part of their plea deal, both Potapenko and Turogin agreed to forfeit assets linked to the scheme, including luxury vehicles, real estate, and millions in seized cryptocurrency. According to a Cointelegraph report, the duo had already repaid $350 million in cryptocurrencies to the victims.

Once the plea deal is accepted, Potapenko and Turogin will now await their sentencing hearing which could come later this year. During the hearing, the court will determine the final penalties for their multi-million-dollar fraud.

In January, a blockchain-focused financial services firm CLS Global admitted to committing fraud and market manipulation crimes. As part of the deal, the company also agreed to pay $428,059 to the government.

Earlier this week, Eric Council, a citizen of the United States, pleaded guilty to hacking the SEC’s official X account in January 2024, just before the approval of spot Bitcoin exchange-traded funds (ETFs).

Chimamanda is a crypto enthusiast and experienced writer focusing on the dynamic world of cryptocurrencies. She joined the industry in 2019 and has since developed an interest in the emerging economy. She combines her passion for blockchain technology with her love for travel and food, bringing a fresh and engaging perspective to her work.

Chimamanda U. Martha on X

Marco T. Lanz on X