Source: US FBI
Seattle – Two Estonian nationals were sentenced today to 16 months in prison for orchestrating a massive cryptocurrency Ponzi scheme that defrauded hundreds of thousands of victims worldwide, including in the United States. The men have already served 16 months in custody; in addition to the custodial term, U.S. District Judge Robert S. Lasnik ordered each to pay a $25,000 fine and complete 360 hours of community service while on supervised release. The men are expected to return to Estonia to serve their terms of supervised release.
The sentences also incorporated the forfeiture of cryptocurrency, funds, vehicles, real property, and cryptocurrency mining equipment—seized by the United States and its foreign law enforcement partners—which are collectively valued at over $450 million. The forfeited assets will be available for a remission process to compensate victims of the crime. Details about the remission process will be announced at a later date.
According to court documents, Sergei Potapenko and Ivan Turõgin, both 40, operated a purported cryptocurrency mining service called HashFlare, which sold contracts promising customers a share of the profits generated from cryptocurrency mining. Cryptocurrency mining is the process of using specialized computers to validate and record transactions on a blockchain network in exchange for a reward of newly generated cryptocurrency.
Between 2015 and 2019, Hashflare sales totaled more than $577 million, relying on fake online dashboards that falsely reported mining activity and returns. HashFlare lacked the computing capacity to mine the vast majority of cryptocurrency it claimed to generate. Potapenko and Turõgin used investor funds to purchase real estate, luxury vehicles, and to fund investment and cryptocurrency accounts for their personal use. The United States has seized or restrained the majority of those assets, which have been preliminarily forfeited.
“These defendants were operating a classic Ponzi scheme, involving a glitzy asset: a mirage of cryptocurrency mining,” said Acting U.S. Attorney Teal Luthy Miller. “And just like a classic Ponzi, they diverted millions of dollars to their own benefit, purchasing their own bitcoin, real estate, luxury cars, expensive jewelry, and more than a dozen trips on chartered private jets. Meanwhile, the vast majority of their victims suffered losses — in many cases, losses that had a serious impact on their financial and emotional well-being.”
Prosecutors had argued for a ten-year prison term. The Department of Justice is considering whether to appeal the sentence.
The Criminal Division thanks the Cybercrime Bureau of the Estonian Police and Border Guard for its support with this investigation. The Estonian Prosecutor General and Ministry of Justice and Digital Affairs provided substantial assistance with the extradition. The Criminal Division’s Office of International Affairs provided extensive assistance with the investigation and the extradition of the defendants.
Assistant U.S. Attorneys Andrew Friedman and Sok Tea Jiang for the Western District of Washington are prosecuting the case with Trial Attorneys Adrienne E. Rosen and David Ginensky of the Criminal Division’s Money Laundering and Asset Recovery Section. Assistant U.S. Attorney Jehiel Baer for the Western District of Washington is handling asset forfeiture aspects of the case.
Individuals who believe they may have been a victim in this case should visit www.fbi.gov/hashflare.