HashFlare founders admit guilt in $550M fraud

Sergei Potapenko and Ivan Turogin, the Estonian co-founders of the cryptocurrency mining service HashFlare, have pleaded guilty to one count of conspiracy to commit wire fraud in a deal with U.S. authorities.

During hearings on February 12 in the U.S. District Court for the Western District of Washington, Potapenko and Turogin admitted guilt to one felony charge out of the 18 they faced from U.S. prosecutors.

The case revolves around HashFlare, which allegedly defrauded users of over $550 million between 2015 and 2019 by operating as a Ponzi (CRYPTO:PONZI) scheme.

The co-founders also raised $25 million in 2017 from investors under the guise of establishing a digital bank called Polybius, which never materialised.

Mark Bini, partner and defense counsel at Reed Smith, stated that both defendants have agreed to forfeit their interests in assets that the Government froze in 2022 and will provide assistance to ensure "zero financial harm to anyone." 

Potapenko, Turogin, and HashFlare purportedly returned $350 million in cryptocurrency payments to users between 2015 and 2022.

HashFlare ceased operations in 2019.

Estonian authorities arrested Potapenko and Turogin in 2022 as part of the 18-count indictment, and they were extradited to the United States in May 2024.

Although free on bail since July 2024, they each face up to 20 years in prison after a sentencing hearing scheduled for May 8.

Norton Rose Fulbright partner Andrey Spektor, Turogin’s attorney, said the defense intended to show at sentencing that no customer has suffered any harm.

The initial indictment stated that Potapenko and Turogin misled HashFlare users about its mining capabilities, with the company allegedly mining at roughly 1% of what the co-founders claimed.

To repay their users, they agreed to forfeit all frozen assets and provide consumer data to help reimbursement efforts.