HashFlare Founders Plead for Leniency as U.S. Prosecutors Demand 10-Year Prison Sentences

The two Estonian co-founders of the now-defunct crypto mining company HashFlare are seeking leniency after pleading guilty to wire fraud, while U.S. federal prosecutors are calling for each to serve a full decade in prison.

The high-profile case—one of the largest crypto fraud prosecutions ever in the United States—has reignited debates around Ponzi schemes, investor protections, and how cross-border crypto crimes are adjudicated in American courts.

Sergei Potapenko and Ivan Turõgin, who launched HashFlare in 2015, filed a joint sentencing memorandum last week urging the court not to impose any additional jail time beyond what they’ve already served.

The duo spent 16 months in custody in Estonia following their 2022 arrests and were extradited to the U.S. in May 2024. They are currently out on bail and are scheduled for sentencing on August 14.

In their filing, the pair emphasized their cooperation with authorities and argued that their pretrial detention in Estonia—under significantly harsher conditions—should be factored into sentencing.

They also claimed that the financial harm to customers was overstated and that they have already taken steps to mitigate losses.

Fraud From Day One?

Federal prosecutors strongly oppose the leniency request. In their own sentencing recommendation, they described the HashFlare operation as a “classic Ponzi scheme” that caused roughly $300 million in actual losses.

According to the government, Potapenko and Turõgin sold more than $577 million worth of fraudulent crypto mining contracts to 440,000 customers between 2015 and 2019.

he scheme allegedly relied on new investor deposits to pay returns to earlier clients while the founders siphoned millions for their lavish lifestyle.

Calling the fraud “the largest ever tried by this court,” prosecutors urged Judge Robert Lasnik to impose 10-year prison terms on both defendants.

“The sentence must reflect the seriousness of the offense while serving as a deterrent to protect the public from future crimes of a similar nature.”

The defense team pushed back, arguing the prosecution had exaggerated the financial fallout. They claimed that 390,000 investors who had collectively put $487 million into HashFlare later withdrew approximately $2.3 billion in value—suggesting that many customers actually made profits, not losses.

They also noted that the founders have agreed to forfeit over $400 million in assets as part of their plea deal, which will be used to fully reimburse remaining victims.

Still, prosecutors maintain the entire business model was fraudulent from the outset. They allege HashFlare never had the computing power it claimed, and misled investors with falsified data and fake mining returns.

The government also dismissed the idea that the case should have been handled in Estonian courts. They emphasized that more than 50,000 victims were based in the United States, collectively investing over $130 million.

Confusion Over Deportation Orders

Adding to the legal drama is a dispute over the defendants’ immigration status. Despite a U.S. court order requiring them to remain in the country until sentencing, the pair said they were instructed by the Department of Homeland Security in April to self-deport immediately.

The conflicting directives have left their legal team seeking clarification on whether the founders will ultimately face long-term imprisonment in the U.S. or be allowed to return to Estonia.