Two men from Estonia have been sentenced in Washington for running what federal prosecutors describe as the largest fraud ever prosecuted in the state’s history, a cryptocurrency Ponzi scheme that generated more than $577 million in sales and impacted hundreds of thousands of people worldwide.
Sergei Potapenko and Ivan Turogin, childhood friends born just five days apart in the same hospital, appeared Tuesday in the U.S. District Court for the Western District of Washington. Each was ordered to pay a $25,000 fine, perform 360 hours of community service over three years, and forfeit hundreds of millions of dollars in assets. The pair has already served 16 months in prison.
The sentencing follows their February guilty pleas to conspiracy to commit wire fraud, a charge that carries a potential prison term of up to 20 years. Prosecutors had pushed for a 10-year sentence, but Judge Robert Lasnik instead issued a time-served punishment.
Court records detail how Potapenko and Turogin launched a cryptocurrency mining service called HashFlare in 2015, advertising that customers could profit from mining operations, a process where specialized computers verify blockchain transactions in exchange for newly minted cryptocurrency. However, investigators found that the operation relied on fake dashboards displaying fabricated mining activity and inflated returns. By 2018, HashFlare would have needed 80,000 mining machines to deliver on its promises, but records showed the company had purchased only about 164, most of which were not functional.
Prosecutors say investor money was instead used to purchase luxury real estate, high-end vehicles, and to fund personal and investment cryptocurrency accounts. Of the more than 440,000 customer accounts linked to the scheme, about 60,000 were based in the U.S., with an estimated total fraud loss of $300 million.
During the plea process, the two men agreed to forfeit $500 million to a remission fund and provided a database to help identify and compensate victims. Defense attorneys argued that HashFlare did pay customers the correct mining returns and questioned whether there was any actual financial loss, but prosecutors strongly disagreed, stating in court documents that “HashFlare was, plain and simple, a Ponzi scheme.”
As part of the sentencing, over $450 million in cryptocurrency, cash, equipment, and other assets will be distributed to victims, with details on the compensation process to be released in the future.
The Department of Homeland Security had previously ordered the men to self-deport in April, but the order was deferred for a year. They will serve their supervised release terms in Estonia. Turogin’s attorney, Andrey Spektor, expressed appreciation for the ruling, saying the defense was “grateful for Judge Lasnik’s careful consideration” in deciding that a time-served sentence was appropriate.
Anyone who believes they were affected by the scheme is encouraged to visit fbi.gov/hashflare for more information.
