Hashflare Co-Founders Plead Guilty in Bungled Trial

Hashflare founders Sergei Potapenko and Ivan Turõgin pled guilty to wire fraud conspiracy today. The Department of Justice (DoJ) struck down nearly 20 charges against the pair, and they hope to receive lighter sentences through their cooperation.

The prosecutors seriously overplayed their hand, totally discredited their star witness, and generally turned the proceedings into a farce.

HashFlare Guilty Plea Avoids Worst Outcomes

Before it all came crashing down, HashFlare was ostensibly a reputable cloud mining business. However, Estonian co-founders Sergei Potapenko and Ivan Turõgin were arrested in 2022 and charged with defrauding investors out of $575 million.

After a lengthy legal battle, HashFlare’s co-founders pled guilty to wire fraud conspiracy today.

“As Ivan admitted today, one of his and Sergei’s businesses promised to mine crypto and did in fact mine crypto, but not as much as it had promised. Instead, it sometimes repaid customers with crypto it had purchased on the open market. Importantly, however, as we will show at sentencing, no customer has suffered any harm,” said a defense lawyer.

In short, the HashFlare executives admitted that they were guilty of fraud, but made strenuous efforts to show the limited impact of their actions. They advertised HashFlare as an easy way to mine crypto from home, but had nowhere near enough resources to fulfill these promises.

Instead, they used customer money to buy assets, and pass them off as mining rewards.

The FBI claimed that the site operated like this from 2015 to 2018, at which point they “invoked a clause in HashFlare’s terms of service that allowed it to shut down if it had been unprofitable for 28 days.”

Most user funds went straight to their enrichment. Still, as they claimed in their guilty plea, the founders showed regret and a desire to pay back their users.

To that end, they agreed to forfeit all frozen assets and provide consumer data to help reimbursement efforts. These assets include several luxury cars and real estate. However, these actions and a guilty plea aren’t enough to reduce the HashFlare co-founders’ sentence: the prosecution erred greatly.

Specifically, the DoJ claimed that the pair managed to move $95 million in cryptoassets after their arrest, proving “that they lied to pretrial services and could not be trusted.” However, the Federal prosecutors’ key witness was wholly discredited, and the proceedings became somewhat farcical.

To name one example of these serious errors, prosecutors were forced to concede that they overrepresented damages by $225 million.

From here, negotiations commenced to salvage some semblance of justice. The HashFlare executives pled guilty to one charge, while almost 20 others were thrown out altogether. It’s unclear what sentence they’ll receive, but it could be much worse.