Two Estonian nationals have pleaded guilty to operating a $577 million cryptocurrency Ponzi scheme through their company, HashFlare, which promised investors lucrative returns from crypto mining.
Sergei Potapenko and Ivan Turõgin, both 40, admitted to conspiracy to commit wire fraud, acknowledging that they lacked the computing power to conduct the crypto mining they advertised.
The U.S. Attorney’s Office for the Western District of Washington confirmed the defendants agreed to forfeit over $400 million in assets, including luxury properties, vehicles, and cryptocurrency accounts.
Fraudulent Crypto Mining Scheme
Between 2015 and 2019, Potapenko and Turõgin sold contracts to customers through HashFlare, claiming that clients would receive a share of mined cryptocurrency profits. However, the company did not possess the necessary computing capacity to conduct most of the mining operations it claimed to perform. Instead, the platform’s web-based dashboard presented falsified data to investors, creating the illusion of profitability.
“The defendants deceived investors on a massive scale, collecting more than half a billion dollars in sales while operating a fraudulent enterprise,” the U.S. Attorney’s Office stated.
When investors attempted to withdraw their supposed mining proceeds, HashFlare was often unable to process payments, further revealing the fraudulent nature of the operation. Law enforcement investigations uncovered that the defendants had laundered proceeds through at least 75 properties, luxury cars, and thousands of crypto mining machines.
Polybius ICO and International Law Enforcement Efforts
In addition to the HashFlare scam, Potapenko and Turõgin admitted to running another fraudulent scheme through Polybius, a 2017 Initial Coin Offering (ICO) that raised $31 million for a purported digital bank. Investors were promised dividends, but no such bank was ever established, and the funds were never used as advertised. Instead, much of the money was siphoned off for personal gain.
“The defendants used investor money to enrich themselves rather than fulfill their business promises,” the FBI’s Seattle office stated.
The two men were arrested in Tallinn, Estonia, on November 20, 2022, in a coordinated operation involving the FBI and Estonian law enforcement. Following a nearly two-year legal battle, Estonia’s Supreme Court approved their extradition to the United States.
Sentencing is scheduled for May 8, with both men facing up to 20 years in prison. The FBI has urged individuals who believe they were victims of the HashFlare scheme to come forward, setting up a dedicated website for submissions.
This case is part of a broader crackdown by U.S. authorities on cryptocurrency fraud. The Western District of Washington previously secured a record-breaking $1.51 billion in fines against crypto firms in 2024, including a $4.3 billion settlement with Binance for regulatory violations.
