DOJ Seeks Decade in Prison for HashFlare Founders in $577M Crypto Scam—Here’s Why It Matters

Feds throw the book at cloud mining fraudsters—turns out 'virtual' profits can lead to very real handcuffs.

When promises of passive crypto income go sideways

The US Department of Justice just dropped the hammer on two HashFlare executives, pushing for maximum sentences in one of the largest alleged crypto Ponzi schemes to date. Prosecutors claim the platform—which supposedly offered Bitcoin cloud mining contracts—was just shuffling funds between users while skimming $577 million.

Why this case stings

Unlike traditional fraud cases, this one cuts straight to crypto's perennial weak spot: the gray area between technological innovation and old-fashioned grift. The DOJ's aggressive sentencing demand signals regulators are done playing whack-a-mole with crypto scams—even when they're dressed up in blockchain buzzwords.

Bonus jab: Another day, another 'disruptive' fintech innovation that suspiciously resembles a 19th-century pyramid scheme—just with worse UX.

Prosecutors Demand Long-Term Sentences for HashFlare Co-Founders

Federal prosecutors have pushed for a 10-year sentence for each defendant, calling the case the largest crypto-related fraud the court has faced. In a memo to Judge Robert Lasnik, the government stated that the scheme generated around $300 million in actual losses.

Between 2015 and 2019, the pair sold more than $577 million in fake mining contracts to over 440,000 customers. Prosecutors say they used new investments to pay old ones, creating the illusion of legitimate profits.

The government described the operation as a “classic Ponzi scheme” that funded the defendants’ personal luxuries. Prosecutors emphasized that the sentence must reflect the scale of the crime and prevent future schemes of similar nature.

HashFlare Co-Founders Dispute Over Financial Losses

Potapenko and Turõgin argued that while HashFlare overstated its mining capacity, customers still received high returns due to rising crypto prices. They claimed that around 390,000 customers withdrew a total of $2.3 billion, which exceeded the original $487 million spent on contracts.

Their legal team maintained that these outcomes lessen the financial damage caused and reduce the need for further incarceration. They also argued that since full repayment is planned, further jail time WOULD not serve justice.

However, prosecutors rejected this reasoning, stating that customer withdrawals were only possible through deceitful practices. They emphasized that investor returns were faked, and customer funds were misused, regardless of market price changes.

Cross-Border Jurisdiction Questions Remain

The case continues to raise jurisdictional questions regarding how U.S. courts handle foreign nationals in global crypto fraud cases. Potapenko and Turõgin were arrested in Estonia in November 2022 and extradited to the U.S. nearly 18 months later.

Despite a court order requiring them to stay in the U.S., the pair claimed they received a notice from the Department of Homeland Security requesting immediate deportation. This contradiction has created confusion about their legal status.

Over 50,000 HashFlare customers were based in the U.S., with $130 million coming from American users. Prosecutors used this to support trying the case in the U.S. court system rather than in Estonia.

The HashFlare sentencing will be closely watched and could shape how authorities pursue crypto-related crimes that span across countries.