HashFlare’s Co-Founders Admit Guilt to Crypto Mining Scam

HashFlare co-founders Sergei Potapenko and Ivan Turogin have pleaded guilty to conspiracy to commit wire fraud in a sweeping $575 million scheme that misled investors about the company’s crypto mining operations.

As part of a deal with US authorities, the Estonian nationals admitted to defrauding users out of more than $550 million between 2015 and 2019 and raising an additional $25 million in 2017 for a digital bank, Polybius, that was never created.

The plea, entered on 12 Febrauary in the US District Court for the Western District of Washington, comes after the duo faced 18 felony charges from prosecutors.

HashFlare’s Crypto Mining Fraud

Founded in 2015, HashFlare marketed itself as a cloud mining platform, offering users the ability to rent hashing power to mine cryptocurrencies.

However, US prosecutors later exposed it as a fraudulent operation that functioned more like a Ponzi scheme than a legitimate mining business.

In 2022, co-founders Potapenko and Turogin were arrested in Estonia on charges of fraud and money laundering conspiracy.

The US Department of Justice (DOJ) described their operation as a “multi-faceted scheme” designed to deceive investors.

According to court filings, HashFlare mined only a small fraction of the Bitcoin (BTC) it claimed, while most customer funds were funnelled into shell companies controlled by the duo.

Investors believed they were earning mining rewards, but in reality, payouts were primarily funded by new deposits rather than actual mining profits.

Additionally, Potapenko and Turogin promoted a sham banking venture, Polybius Bank, convincing investors to contribute over $25 million with false promises of profit-sharing.

Instead, the funds were laundered through luxury real estate and high-end assets across Europe.

The Convicted Duo Agreed to Forfeit Assets Linked to Scheme

Reed Smith partner and defense counsel Mark Bini stated that both defendants had agreed to forfeit their frozen assets and assist authorities to ensure “zero financial harm to anyone.”

According to Bini, Potapenko, Turogin, and HashFlare returned $350 million in crypto payments to users between 2015 and 2022 before shutting down operations in 2019.

Estonian authorities arrested Potapenko and Turogin in 2022 as part of an 18-count indictment.

Following legal proceedings, they were extradited to the US in May 2024 and have been free on bail since July.

Both face up to 20 years in prison, with sentencing hearings scheduled for 8 May.

Once the plea deal is finalised, the court will determine the penalties for their role in the multi-million-dollar fraud.

The indictment alleges that Potapenko and Turogin misled HashFlare users about its mining capabilities, reportedly delivering only 1% of the output they had promised.

However, Turogin’s attorney, Norton Rose Fulbright partner Andrey Spektor, argued that the company did mine crypto—just not at the levels advertised.

The defense intends to prove at sentencing that “no customer has suffered any harm.”