Convicted Estonian Nationals Implicated in $577 Million Ponzi Scam in Washington State
In the U.S. District Court for the Western District of Washington, two Estonian nationals, Sergei Potapenko and Ivan Turogin, were sentenced for orchestrating a cryptocurrency Ponzi scheme that defrauded investors of over $577 million[1][4]. The scheme, involving a mining service called HashFlare, is the largest fraud ever prosecuted in the district's history[1].
HashFlare, marketed as a cryptocurrency mining service since 2015, promised profits from mining activity using special computers to validate blockchain transactions and generate new cryptocurrency[1]. However, the company falsified mining activity and returns through fake online dashboards, while diverting investor funds to buy real estate, luxury cars, and to fund personal cryptocurrency accounts[1].
By 2018, HashFlare claimed mining capacity requiring 80,000 machines, but it had only about 164, most of which did not function properly[1]. The fraud involved more than 440,000 customer accounts worldwide, including 60,000 in the United States, with estimated total losses of about $300 million[1].
During their guilty plea to conspiracy to commit wire fraud, Potapenko and Turogin forfeited $500 million to a remission fund intended to compensate victims and provided the government with a database to facilitate restitution[1][2]. The court forfeited more than $450 million worth of cryptocurrency, funds, equipment, and other assets from Potapenko and Turogin[1].
The sentencing follows their guilty plea to wire fraud conspiracy in February, an offense that carries a maximum prison sentence of 20 years[6]. Potapenko and Turogin must each pay a $25,000 fine, complete 360 hours of community service over three years, and have already served 16 months in prison[1]. They will serve their terms of supervised release in Estonia, as per the news release[3].
The Department of Homeland Security had previously told Potapenko and Turogin to self-deport, but the order was deferred by a year[7]. Prosecutors contested the defense's arguments about losses from the fraud in a supplemental sentencing memorandum filed Monday[8].
Anyone who believes they were affected by the HashFlare scheme should visit fbi.gov/hashflare for more information. More details about the compensation for victims will be announced later[3].
| Aspect | Details | |----------------------|--------------------------------------------------------------| | Defendants | Sergei Potapenko and Ivan Turogin | | Scheme | HashFlare cryptocurrency mining Ponzi scheme | | Prosecution Venue | U.S. District Court for the Western District of Washington | | Fraud Amount | Approx. $577 million | | Customer Base | Over 440,000 accounts, 60,000 in the U.S. | | Modus Operandi | Fake mining activity dashboards; insufficient actual mining | | Use of Funds | Real estate, luxury vehicles, personal crypto accounts | | Asset Forfeiture | $500 million forfeited for victim compensation | | Sentencing Recommendation| Prosecutors: 10 years imprisonment; defense sought time served| | Sentencing Outcome | Sentence acknowledged cooperation and forfeiture; judge recognized mitigation factors[1][2][5] |
This case serves as a reminder of the complexities of cryptocurrency-related financial crimes and the ongoing efforts to protect victims and bring perpetrators to justice.
[1] The Washington Post [2] CoinDesk [3] FBI Press Release [4] Department of Justice Press Release [5] Cointelegraph [6] Cryptovest [7] Reuters [8] Law360
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