US prosecutors appealed the sentences of time served given to the co-founders of HashFlare, a crypto mining service and $577 million Ponzi scheme.
Prosecutors told a Seattle federal court on Tuesday that the government was appealing the sentences handed down earlier this month to Sergei Potapenko and Ivan Turõgin to the Ninth Circuit.
Potapenko and Turõgin were in custody for 16 months in their native Estonia after their arrest in October 2022 and were extradited to the US in May 2024, where they pleaded guilty to conspiracy to commit wire fraud.
The government had argued that the pair should get 10 years in prison, saying that the HashFlare scheme caused serious harm to victims and was the most significant fraud the court had ever tried. Potapenko and Turõgin argued for time served.
On Aug. 12, Seattle Federal Court Judge Robert Lasnik sentenced the pair to time served, a $25,000 fine and ordered them to complete 360 hours of community service while on supervised release, which is expected to be served in Estonia.
Blockchain crime investigators and companies have flagged a lack of significant consequences and dropped enforcement actions against bad actors as key drivers for crypto crime, due to a perceived lack of consequences for criminal acts.
HashFlare founders say victims were repaid
Prosecutors said that between 2015 and 2019, HashFlare’s sales totaled over $577 million, and the co-founders posted fake dashboards that falsely reported the firm’s mining capacity and the returns investors were making.
Existing members were paid out with funds from newer customers, which the government said “proved to be a classic Ponzi scheme.”
Lawyers for Potapenko and Turõgin argued that despite overstating HashFlare’s mining capacity, the company’s customers ultimately received crypto worth far more than their initial investments, primarily from the increase in crypto market prices since the scheme closed.
They also said victims would be paid in full from the more than $400 million worth of assets forfeited as part of Potapenko and Turõgin’s plea deal in February. However, prosectors alleged that the data was fabricated, and these arguments were inaccurate.