HashFlare Co-founders Plead Guilty to $550M Crypto Fraud

Generated by AI AgentCoin World
Thursday, Feb 13, 2025 6:10 am ET1min read
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The co-founders of HashFlare, a now-defunct cloud mining service, have pleaded guilty to one count of conspiracy to commit wire fraud as part of a deal with US authorities. Estonian nationals Sergei Potapenko and Ivan Turogin faced 18 felony charges in the US District Court for the Western District of Washington, but have accepted a plea deal that significantly reduces their potential sentencing exposure.

Their guilty pleas mark a pivotal moment in one of the most significant cryptocurrency fraud cases in recent years, following accusations that the two men defrauded HashFlare users of over $550 million between 2015 and 2019. They also allegedly raised $25 million in 2017 under the guise of launching a digital bank called Polybius, a project that never materialized.

HashFlare, founded in 2015, promised users the ability to participate in cloud-based cryptocurrency mining operations without needing to own expensive mining hardware. The company claimed that customers could purchase hash power, which would be used to mine cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC).

However, US prosecutors say that HashFlare's operations were built on deception. The company allegedly mined at only 1% of the rate it claimed, while misleading investors into believing they were receiving legitimate mining returns. Instead of using customer funds for mining, the company is accused of running a classic Ponzi scheme, paying out earlier investors with the funds of new users.

The fraudulent scheme collapsed in 2019, when HashFlare suddenly shut down operations and stopped processing customer withdrawals, leaving thousands of investors with substantial losses.

In November 2022, Estonian authorities arrested Potapenko and Turogin in connection with the fraud case. After facing lengthy legal battles, the two were extradited to the United States in May 2024. Since July 2024, they have remained free on bail while awaiting their court hearings.

On Feb. 12, 2025, Potapenko and Turogin pleaded guilty to one felony count of conspiracy to commit wire fraud as part of a plea agreement. While this significantly reduces the number of charges they were initially facing, they still face a potential sentence