HashFlare Founders Seek No More Jail After 16 Months in Estonia

HashFlare co-founders Sergei Potapenko and Ivan Turõgin asked a Seattle federal court to count their 16 months in Estonian custody as enough punishment. U.S. prosecutors want Judge Robert Lasnik to give them 10 years in prison each.

The founders filed a joint sentencing memo Wednesday, saying their help with investigators and time already served means they should not get more prison time. In the past, they pleaded guilty to wire fraud in a case involving more than $575 million.

Prosecutors say the scheme caused about $300 million in investor losses and want each defendant to serve 10 years. They wrote that HashFlare was the largest fraud case ever handled in the Seattle district. The defendants sold $577 million in cloud mining contracts to about 440,000 customers between 2015 and 2019. They used money from new investors to pay earlier ones. More than 50,000 U.S.-based investors lost over $130 million.

Estonian authorities arrested Potapenko and Turõgin in November 2022. They spent 16 months in jail before coming to the U.S. in May 2024. After pleading guilty to conspiracy to commit wire fraud, they were released on bail. Their sentencing is set for August 12.

The defense memo said HashFlare customers invested $487 million total in mining contracts. These customers later withdrew about $2.3 billion in cryptocurrency, much more than they put in. The large returns came mainly from crypto price increases after HashFlare stopped operating. The founders also gave up over $400 million in assets through a February plea agreement to pay back victims.

Prosecutors rejected the idea that customers did well. They said many investors had financial problems and that the forfeited assets have not fully covered victim losses. Payments stopped in mid-2019, which led to complaints and regulatory attention when withdrawals became slow.

The founders want to return to Estonia, which adds another issue to the case. They received a Department of Homeland Security letter telling them to “depart immediately.” However, a court order requires them to be present for sentencing. This creates questions about coordination between criminal courts and immigration authorities.

HashFlare started in 2015 as a cloud-based cryptocurrency mining service. It promised daily payouts tied to Bitcoin and Ethereum mining. By 2019, customer withdrawals became slow and payouts stopped. This prompted investigations in multiple countries. U.S. authorities opened an investigation that led to charges in November 2022.