Quick Takeaways
- Two Estonian nationals, Sergei Potapenko and Ivan Turõgin, pled guilty to operating a massive $577 million crypto scam a Ponzi scheme through their fraudulent mining service, HashFlare, which lacked the computing power they claimed to have.
- The pair promised significant returns to investors and raised $25 million through a bogus Initial Coin Offering for a project called Polybius, which never materialized into an actual bank.
- They will forfeit over $400 million in assets as part of their plea agreement, aimed at compensating the victims of their fraud.
- Both men face up to 20 years in prison, with sentencing scheduled for May 8, following their extradition to the U.S. after their arrest in Estonia in 2022.
Estonian Nationals Plead Guilty in $577M HashFlare Crypto Ponzi Scheme
Two Estonian citizens, Sergei Potapenko and Ivan Turõgin, pleaded guilty yesterday to orchestrating a massive cryptocurrency Ponzi scheme. This scheme defrauded hundreds of thousands of investors worldwide, including many in the United States.
The fraudulent operation revolved around a crypto-mining service called HashFlare. Between 2015 and 2019, HashFlare reportedly generated $577 million in sales. However, the company lacked the computing power to deliver on its promises. To deceive customers, HashFlare displayed falsified data on its web dashboard, suggesting high mining profits.
Moreover, Potapenko and Turõgin’s activities extended beyond HashFlare. In 2017, they launched an Initial Coin Offering for a project named Polybius, claiming it would create a bank specializing in digital currency. They raised at least $25 million from investors but never established the bank.
Encouraged by the founders, many individuals invested their savings with the promise of substantial returns. While the men paid some early investors to maintain the illusion of profitability, the majority of funds disappeared into various accounts. The proceeds went toward luxury vehicles and real estate, illustrating the personal gain from their deceit.
As part of their plea agreement, both men must forfeit over $400 million in assets. These funds will serve to compensate victims of the scheme. Further details on the compensation process will follow.
Authorities arrested Potapenko and Turõgin in November 2022 after an investigation into their fraudulent practices. Initially charged with 16 counts of wire fraud and one count of conspiracy to commit money laundering, their extradition to the U.S. faced delays. However, deportation approval came through in January 2024, leading to their guilty pleas.
The men admitted to conspiracy to commit wire fraud. They now face a sentence on May 8, with the possibility of up to 20 years in prison. A federal judge will determine their ultimate penalty based on U.S. Sentencing Guidelines.
This case not only highlights the risks associated with cryptocurrency investments but also underscores the need for stronger regulatory measures within the tech industry. The outcomes may encourage future efforts to protect investors from similar fraudulent schemes.
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