Estonian Nationals Plead Guilty in $577M HashFlare Crypto Ponzi Scheme

Two Estonian citizens pleaded guilty yesterday to running a massive cryptocurrency Ponzi scheme that defrauded hundreds of thousands of investors worldwide, including in the United States.

The scheme involved a fraudulent crypto-mining service called HashFlare, resulting in investor losses of over $577 million.

Founders Agree to Forfeit $400M in Assets

According to court documents, Sergei Potapenko and Ivan Turõgin, both 40, sold contracts to customers, entitling them to a share of crypto mined by their purported crypto mining service.

Between 2015 and 2019, HashFlare’s sales totaled more than $577 million. However, the firm did not have the necessary computing power to perform most of the mining it claimed to carry out. To hide this, the company’s web-based dashboard displayed falsified data as customers’ supposed mining profits.

The fraudulent activities of the Estonian nationals extend beyond HashFlare. In 2017, the co-founders launched an Initial Coin Offering (ICO) for a project called Polybius, claiming it would establish a bank specializing in digital currency.

The initiative promised investors dividends from the bank’s future profits, leading to at least $25 million being raised. However, no such bank was ever created.

The perpetrators encouraged individuals to invest their savings in both companies, assuring them of substantial returns. Potapenko and Turõgin even distributed some profits to early investors to maintain the scheme’s credibility.

However, the companies failed to deliver the promised returns. The funds were instead redirected to various accounts and crypto wallets controlled by the two men. The proceeds were then used to purchase real estate and luxury vehicles and maintain investment and crypto accounts.

As part of their plea agreement, the duo will forfeit assets worth more than $400 million, which will be used in remission to compensate victims. Further details on this process will be announced at a later date.

The Guilty Plea

After investigating their fraudulent crypto operations, authorities apprehended Potapenko and Turõgin in Estonia in November 2022. At the time, the U.S. DOJ charged the duo with 16 counts of wire fraud and one count of conspiracy to commit money laundering.

Following their arrests, the U.S. sought their extradition, but an Estonian Circuit Court annulled the request in 2023, citing concerns over the conditions of U.S. detention facilities.

However, in January 2024, their deportation to the United States was again approved, resulting in their recent guilty pleas.

Both men admitted to one count of conspiracy to commit wire fraud and are scheduled for sentencing on May 8. They each face up to 20 years in prison, and the final conviction will be determined by a federal judge based on the U.S. Sentencing Guidelines and other legal factors.