The two founders of the now-defunct Bitcoin cloud miner HashFlare have been arrested in Estonia over their alleged involvement in a $575 million crypto fraud conspiracy.
HashFlare was a cloud mining company created in 2015, which purported to allow customers to lease the company’s hashing power in order to mine cryptocurrencies and gain an equivalent share of its profits.
The company was seen as one of the leading names in the business at the time, but shut down its mining operations in Jul. 2018.
However, according to a statement from the United States Department of Justice citing court document, the entire mining operation, run by founders Sergei Potapenko and Ivan Turõgin, was part of a “multi-faceted scheme” that “defrauded hundreds of thousands of victims.”
This included convincing victims to enter into “fraudulent equipment rental contracts” through HashFlare and persuading other victims to invest in a fake virtual currency bank called Polybius Bank.
The pair is also accused of conspiring to launder their “criminal proceeds” through 75 properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.
U.S. Attorney Nick Brown for the Western District of Washington called the size and scope of the alleged scheme “truly astounding.”
“These defendants capitalized on both the allure of cryptocurrency and the mystery surrounding cryptocurrency mining, to commit an enormous Ponzi scheme,” he said.
The HashFlare founders have been charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering using shell companies and fraudulent invoices and contracts, and could face up to 20 years in prison if convicted.
Two Estonian Citizens Arrested in $575 Million Cryptocurrency Fraud and Money Laundering Schemehttps://t.co/PLdyf6JSEC
— Criminal Division (@DOJCrimDiv) November 21, 2022
HashFlares’ parent company HashCoins OU was founded by Potapenko and Turõgin in 2013, while HashFlare launched mining services in 2015. It initially offered contracts for SHA-256 (Bitcoin) and scrypt. ETHASH (ETH), DASH, and ZCASH options followed.
According to the indictment, the pair claimed HashFlare was a “massive cryptomining operation,” however, it’s alleged the company was mining at a rate of less than 1% of what it claimed, and was paying out withdrawals by purchasing Bitcoin (BTC) from third parties, rather than gains from mining operations.
By Jul. 2018,…
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