US prosecutors seek 10-year prison sentence for HashFlare co-founders

What’s new? Two Estonian citizens, Sergei Potapenko and Ivan Turogin, co-founders of the cryptocurrency mining service HashFlare, will face trial in the United States after pleading guilty to conspiracy to commit fraud.

Material by Cointelegraph

What else is known? Potapenko and Turogin were arrested in Tallinn on November 20, 2022, at the initiative of the FBI in connection with crypto fraud and laundering $575 million.

Founded in 2015, HashFlare offered customers the opportunity to rent mining power to mine cryptocurrencies. However, according to court documents, it did not have the declared amount of equipment and hashrate: instead of payments from mining, Potapenko and Turogin sent investors assets purchased on the open market.

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HashFlare ceased operations in 2019, by which time users from around the world had signed contracts with the project worth more than $550 million.

In 2017, the founders of HashFlare began promoting another project — the cryptocurrency neobank Polybius Bank, with a high-yield deposit program. Although the bank was never launched, it brought Potapenko and Turogin at least $25 million.

The founders of HashFlare and Polybius Bank then used shell companies to transfer the assets they had obtained to various bank accounts and crypto wallets. In total, they purchased at least 75 properties, six luxury cars, and thousands of mining rigs.

Potapenko and Turogin were held in custody in Estonia until their extradition to the United States in May 2024. Both were released on bail in July 2024 and pleaded guilty in February of this year as part of a plea bargain with the prosecution.

In a new statement, the prosecution commented on the lawyers’ recommendations regarding sentencing. The defense requested that no prison sentence be imposed beyond the term already served, while law enforcement officials demanded 10 years in prison for each defendant.

The prosecution noted that the defendants tried to discredit the victims of HashFlare. In addition, HashFlare’s founders claimed in previous court documents that users did not suffer significant losses, as they returned $400 million in cryptocurrency to the victims and waived their rights to assets frozen by the US government in 2022.

In a new statement, the prosecutor’s office emphasized that HashFlare’s activities were, in essence, a “fraud, a Ponzi Scheme.”