HashFlare Founders Arrested in $575 Million Fraud Scheme

Two Estonian nationals who ran HashFlare were arrested for defrauding investors of a total of $575 million (roughly Rs. 4,668 crore). HashFlare, a cloud mining service founded in 2015 had shut down its Bitcoin mining hardware and canceled related contracts after it said it allowed customers to rent the company’s hashing power to mine cryptocurrencies and receive an equal share of their profits. The company was considered one of the leading companies in the business at the time but closed its mining operations in July 2018.

In accordance with a statement from the US Department of Justice Citing court documents, all excavation work was conducted by founders Sergei Potapenko and Ivan Turõgin. This includes convincing victims to enter into a contract to rent fake machines through HashFlare and persuading other victims to invest in a fake bank called Polybius Bank.

The couple is also accused of conspiring to launder their “criminal proceeds” by using 75 properties, six luxury cars, a cryptocurrency wallet, and thousands of cryptocurrency mining machines.

US Attorney Nick Brown of Washington’s Western District said the allegations of the scale and scope of the scheme were “absolutely astonishing”. “These defendants used the power of cryptocurrencies and the mysteries surrounding cryptocurrency mining, to create a very large Ponzi scheme,” he said.

The founders of HashFlare have been charged with conspiracy to defraud, 16 counts of wire fraud, and one count of conspiracy to commit money laundering using a shell company and fake invoices and contracts, and could face up to 20 years in prison if convicted.

HashFlare’s parent company, HashCoins OU was founded by Potapenko and Turõgin in 2013, while HashFlare launched a mining service in 2015.

According to the lawsuit, the couple claims that HashFlare is “a large crypto mining operation,” however, it is alleged that the company mined for less than 1 percent less than it claimed, and paid withdrawals by buying Bitcoin from third parties, instead of profits from mining operations.

In July 2018, Cointelegraph reported, HashFlare announced the termination of BTC mining services, citing difficulties in generating revenue amid market volatility. Other crypto assets in the platform’s portfolio continued to operate as normal. The company has been accused of fraudulent activities but these allegations have never been officially confirmed.

The last public communication from HashFlare came in 2019. by post on August 9 where they announced that they are suspending the sale of ETH contracts because “current capacity has been sold.”

The company promised to resume operations “in the near future” and teased more announcements, but nothing was publicly revealed about what happened and HashFlare quietly disappeared.

The FBI is currently investigating this case and is seeking information from customers who participated in the alleged fraudulent scheme of HashFlare, HashCoins OU, and Polybius. There were 18 indictments alleging the involvement of Potapenkos and Turõgin that were returned by a judge in Washington’s Western District on October 27 and dismissed on November 21.

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