Two men from Estonia, Sergei Potapenko and Ivan Turõgin, have been sentenced in the United States for running one of the largest cryptocurrency fraud schemes in recent years. The scam, operating under the name HashFlare, deceived hundreds of thousands of people worldwide into investing in a fake cryptocurrency mining service.
According to court records, between 2015 and 2019, the operation collected over $577 million from customers who believed they were purchasing contracts for a share of profits from cryptocurrency mining — the process where powerful computers validate transactions on a blockchain and receive cryptocurrency as a reward.
Investigators later found that HashFlare did not have the computing power to mine most of the cryptocurrency it claimed to produce. Fake dashboards displayed mining activity and earnings that did not exist. The illusion convinced victims to keep investing.
Potapenko and Turõgin used millions of dollars of investor funds for personal benefit. Purchases included luxury cars, high-end jewelry, expensive properties, and more than a dozen private jet trips. While the two lived lavishly, the majority of investors suffered substantial losses, in some cases losing savings they could not afford to part with.
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The Sentencing and Penalties
The sentencing took place in a U.S. federal court before U.S. District Judge Robert S. Lasnik, who imposed 16-month prison terms on each man. Since they had already been held in custody for 16 months while awaiting trial, they will not serve more prison time.
Each defendant was also ordered to pay a $25,000 fine and complete 360 hours of community service. Following their return to Estonia, they will serve their supervised release period under monitoring.
Law enforcement agencies have seized or restrained cryptocurrency, funds, vehicles, real estate, and mining equipment worth more than $450 million. These assets have been preliminarily forfeited and will be made available for a remission process to help repay victims. Authorities have stated that details on how to participate in the process will be released at a later date.
Prosecutors, led by Acting U.S. Attorney Teal Luthy Miller, had sought a 10-year prison term for each man, pointing to the massive scale of the fraud and the harm done to victims. The U.S. Department of Justice is considering whether to appeal the sentence.
How the Scheme Worked
HashFlare marketed itself as a large-scale cryptocurrency mining company. Customers could buy contracts to earn a share of mining profits for digital currencies like Bitcoin. The website showed real-time statistics, charts, and graphs suggesting active mining operations.
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In reality, the company was mining only a tiny fraction of the cryptocurrency it claimed. Most of the income came from new investors, not mining profits. Like a classic Ponzi scheme, the operation used money from later investors to make limited payouts to earlier ones, creating the false impression of a profitable business.
The scam lasted for four years before being dismantled. The investigation required international cooperation, with the Estonian Police and Border Guard playing a critical role. The Estonian Prosecutor General’s Office and Ministry of Justice also provided assistance with extradition to the United States.
The prosecution team included Assistant U.S. Attorneys Andrew Friedman and Sok Tea Jiang from the Western District of Washington, as well as Trial Attorneys Adrienne E. Rosen and David Ginensky from the Criminal Division’s Money Laundering and Asset Recovery Section. Assistant U.S. Attorney Jehiel Baer oversaw asset forfeiture proceedings.
Authorities described the scheme as “a mirage of cryptocurrency mining” — a modern version of an age-old scam. Victims believed they were investing in a legitimate high-tech business, but instead, their funds financed the extravagant lifestyles of Potapenko and Turõgin.