The masterminds behind the HashFlare crypto Ponzi scheme that defrauded over 400,000 victims have avoided more jail time after a Seattle court sentenced them to time served.
- HashFlare founders were sentenced to time served after 16 months in custody.
- The court has ordered $450M in assets forfeited for a remission process to compensate affected investors.
Sergei Potapenko and Ivan Turõgin, who U.S. prosecutors accused of running one of the largest cryptocurrency frauds ever tried in the Western District of Washington, walked out of the sentencing hearing with no additional prison term.
The court counted the 16 months they spent in custody in Estonia and the United States as their full sentence. Both of them were ordered to pay a $25,000 fine and complete 360 hours of community service while on supervised release.
Details of the sentencing
U.S. District Judge Robert S. Lasnik said the pair will serve their supervised release in Estonia.
As part of the sentencing, the duo was asked to forfeit assets worth more than $450 million, including a mix of cryptocurrency, cash, vehicles, real estate, and mining equipment. These assets will go through a remission process to compensate victims, with details to be announced later by the Department of Justice.
The judge’s decision landed well below the 10 years prosecutors had urged. They warned that the scheme had drained both the finances and the peace of mind of thousands, and argued that 16 months in custody barely scratched the surface of what the crime deserved.
However, Potapenko and Turõgin’s defense countered that many customers had been able to withdraw more than they had invested, and that $400 million in assets had already been returned or forfeited.
Why did they receive time served?
Judge Lasnik appeared to weigh the forfeitures and partial victim repayments heavily in deciding against further prison time.
Defense lawyers also argued that the pair endured lengthy pretrial detention in Estonia and complex extradition proceedings before arriving in the United States in May 2024. By February 2025, they had pleaded guilty to conspiracy to commit wire fraud under a deal that avoided a full trial.
The court showed some leniency, reasoning that the upcoming remission process could return substantial funds to victims. Prosecutors, however, maintained that many investors suffered heavy losses and that the damage caused by the scheme remained undeniable.
DOJ is considering an appeal
The DOJ said it is reviewing whether to appeal the sentence, as it may be considering the 16 months already served insufficient, given the scope and the number of victims affected by the scheme.
Prosecutors may be weighing the consequences of letting such a prominent crypto fraud end with a light sentence, as it risks sending the wrong message, one that could blunt the force of future prosecutions.
“[…] Just like a classic Ponzi, they diverted millions of dollars to their own benefit […] 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,” Acting U.S. Attorney Teal Luthy Miller was quoted as saying.
An appeal from the agency could focus on the argument that the court undervalued the damage caused and overestimated the significance of repayments, particularly since much of the data on investor earnings had been fabricated.
A classic Ponzi scheme
Potapenko and Turõgin launched HashFlare in 2015, advertising it as a cryptocurrency mining service that sold contracts giving customers a share of mining profits. Between 2015 and 2019, the company sold more than $577 million in such contracts.
According to the DOJ, the scheme used fabricated dashboards to show mining performance, and the company even lacked the computing power to generate most of the cryptocurrency it claimed to mine.
The two also promoted Polybius Bank, a supposed crypto-focused financial institution, which prosecutors said never became operational. Both ventures allegedly served as vehicles to collect investor funds, which the defendants moved through shell companies and personal accounts.
Prosecutors described HashFlare as a “classic Ponzi scheme” that used new investors’ money to pay earlier participants, while the founders diverted millions for personal gains. At its peak, the scheme drew in more than 440,000 customers from various corners of the globe.
