Estonian nationals Sergei Potapenko and Ivan Turõgin, operators of the defunct cloud mining service HashFlare, pleaded guilty to a multi-faceted $577 million cryptocurrency Ponzi scheme, according to the U.S. Department of Justice.
HashFlare provided cloud mining services between 2015 and 2019, allowing users to mine cryptocurrencies like bitcoin and ether without needing to own or maintain physical mining hardware. Users could instead purchase mining contracts to rent hash power from HashFlare's mining infrastructure.
However, HashFlare did not possess the hashrate capacity to carry out the vast majority of the mining it purported to perform, apparently mining bitcoin at less than 1% of the computing power it claimed to have, with its web-based dashboard reflecting falsified mining profits, the DOJ said on Thursday. It also encouraged users to invest in a fake crypto bank called Polybius, which did not pay out customers’ dividends, leaving behind hundreds of thousands of victims from across the world, including in the United States.
HashFlare suspended its mining services in 2018 and eventually shut down operations, pocketing more than $577 million in sales. Potapenko and Turõgin were arrested in the Estonian capital Tallinn, in November 2022, charged with conspiracy to commit wire fraud, 16 counts of wire fraud and one count of conspiracy to commit money laundering, and were subsequently extradited to the U.S.
Pair face up to 20 years in prison
Potapenko and Turõgin used proceeds of the fraud to buy 75 real estate properties, six luxury vehicles and to maintain investment and crypto accounts, the DOJ said. The duo each pleaded guilty to one count of conspiracy to commit wire fraud and agreed to forfeit assets currently worth over $400 million, which will be used to compensate victims through a forthcoming remission process.
Potapenko and Turõgin will be sentenced on May 8 and face up to 20 years in prison.
The DOJ thanked the Estonian Police, its Prosecutor General and the Ministry of Justice and Digital Affairs for their support in the investigation and extradition of the pair. The FBI Seattle field office led the investigation of the case, with assistance from various U.S. officials and prosecutors.
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