HashFlare $550M Crypto Scam: Founders Avoid Prison with ‘Time Served’

Sergei Potapenko and Ivan Turogin, co-founders of crypto cloud mining company HashFlare that was involved in a $577 million Ponzi scheme, have escaped jail time in the United States and received a ‘time served’ court sentence seven months after pleading guilty to their roles in committing wire fraud.

During Tuesday’s hearing at the Seattle Federal Court, Judge Robert Lasnik ordered the Estonian nationals to pay a $25,000 fine each and complete 360 hours of community service while on supervised release, which they will serve in their native country.

DoJ Displeased with Time Served Sentence for HashFlare Founders

The U.S. Department of Justice was not pleased with the court order, as prosecutors asked for the duo to be imprisoned for 10 years, arguing that the harm they caused to HashFlare’s victims “could not be more real”. The Justice Department called it the largest fraud case ever tried, and urged the court to impose a decade-long sentence for both men.

Potapenko and Turogin claimed in previous court filings that users had not suffered any significant losses after the company returned $400 million in crypto and agreed to forfeit interests in assets frozen by the U.S. government following their arrest in 2022, with their lawyers calling for a time served sentence.

The DoJ dismissed the defendants’ arguments in a Monday filing as “wrong” and that HashFlare essentially operated as a “fraud, a Ponzi scheme” that defrauded victims worldwide for hundreds of millions of dollars.

The pair were indicted in October 2022 and arrested in Estonia the following month. They were held in custody for 16 months before being extradited to the U.S. in May 2024, faced with up to 20 years in prison each. They have been out on bail since July 2024 and pleaded guilty earlier this year to conspiracy to commit wire fraud by fabricating investor earnings data and misleading customers into buying fraudulent crypto cloud mining contracts.

The judge found merit in Potapenko and Turogin’s arguments that the 440,000 HashFlare customers, of which 50,000 were from the U.S., they are accused of scamming were reimbursed for $400 million as part of a plea deal. The founders also argued that 390,000 of those clients, who had spent $487 million on HashFlare mining contracts, have since withdrawn $2.3 billion worth of assets from the platform.

HashFlare possessed <1% in Mining Capacity and Misled Customers into believing that they were Earning Massive Profits

Prosecutors called the co-founders’ arguments wrong, claiming that the pair relied on fabricated earnings data, which they previously admitted to falsifying, to prove their case. The DoJ argued that between 2015 and 2019, HashFlare generated over $577 million in sales and posted fake documents that falsely reported the firm’s crypto mining capacity and returns being made by investors. The company also raised $25 million from investors in 2017 to establish a digital bank called Polybius, which never happened.

In reality, the crypto cloud miner possessed less than 1% of the computing power it advertised, where it promised investors massive shares from the operation. The pyramid scheme involved paying out existing members with funds received from newer customers or cryptocurrency purchased on the open market, thereby creating the illusion of profit.

Also read: Best Crypto To Buy Now Amid Market Slump: $XNY, $AIO, $WEMIX

The Co-Founders Received a Letter from the DHS Asking to “Self-Deport”

Despite the court’s orders for Potapenko and Turogin to remain in the US during proceedings, the founders said in April that they received a letter from the Department of Homeland Security (DHS) directing them to “self-deport” from the country immediately as part of the Trump administration’s push for mass deportations. The DHS letters were sent to individuals who had used the government’s CBP One app to enter the country.

The Seattle court’s order directing the HashFlare founders to serve the remaining time of their sentence in their home country could be in alignment with the White House’s directive.