In a significant development for the cryptocurrency industry, two Estonian nationals have admitted to orchestrating one of the largest cryptocurrency mining fraud schemes to date.
Sergei Potapenko and Ivan Turõgin, both 40, have pleaded guilty to operating HashFlare, a fraudulent crypto mining service that amassed over $577 million from unsuspecting investors between 2015 and 2019.
The scheme centered around selling contracts that promised investors a share of cryptocurrency mining profits. However, court documents reveal that HashFlare lacked the necessary computing infrastructure to perform the mining operations they claimed to conduct. Instead, the platform's web dashboard displayed fabricated data to deceive customers about their mining profits.
HashFlare's operations exemplify the sophisticated nature of cryptocurrency fraud in the digital age. The company sold mining contracts to hundreds of thousands of victims worldwide, including many in the United States, capitalizing on the growing interest in cryptocurrency mining during the crypto boom years.
"Between 2015 and 2019, Hashflare's sales totaled more than $577 million, but HashFlare did not possess the requisite computing capacity to perform the vast majority of the mining the defendants told HashFlare customers it performed," according to the Justice Department's statement.
The defendants used the fraudulently obtained funds to purchase real estate and luxury vehicles and maintain various investment and cryptocurrency accounts.
As part of their guilty plea, Potapenko and Turõgin have agreed to forfeit assets valued at over $400 million, which will be used to compensate victims through the remission process.
The case, investigated by the FBI Seattle Field Office with support from Estonian authorities, highlights the increasing international cooperation in combating cryptocurrency fraud.
The defendants face a maximum penalty of 20 years, with sentencing scheduled for May 8.