US court hands Estonian citizens 16-month sentence in US$577 million crypto fraud
Two Estonian citizens were sentenced by a Seattle court to 16 months in prison in the United States for orchestrating a mass cryptocurrency Ponzi scheme which defrauded hundreds of thousands of victims worldwide.
The defendants, Ivan Turõgin and Sergei Potapenko, both 40, had already served 16 months in custody, meaning they can in effect walk free and are expected to return to Estonia.
However, U.S. District Judge Robert S. Lasnik also ordered each to pay a US$25,000 (€21,394) fine and complete 360 hours of community service while on supervised release.
"These defendants were operating a classic Ponzi scheme, involving a glitzy asset: a mirage of cryptocurrency mining," acting U.S. Attorney Teal Luthy Miller said.
"And just like a classic Ponzi, they diverted millions of dollars to their own benefit, purchasing their own bitcoin, real estate, luxury cars, expensive jewelry, and more than a dozen trips on chartered private jets. Meanwhile, the vast majority of their victims suffered losses — in many cases, losses that had a serious impact on their financial and emotional well-being," Miller went on in a U.S. Attorney's Office press release.
The pair must also forfeit cryptocurrency, funds, vehicles, real property, and cryptocurrency mining equipment, which had been seized by the U.S. and its foreign law enforcement partners, to a total value of over US$450 million (€385 million).
Between 2015 and 2019, Potapenko and Turõgin's company, Hashflare, had sold contracts fraudulently promising customers a share of the profits generated from cryptocurrency mining. The pair used fake online dashboards that falsely reported mining activity and returns. Sales had totaled over US$577 million (€494 million).
Hashflare actually lacked the computing capacity to mine the vast majority of cryptocurrency it claimed to generate, and Potapenko and Turõgin used the investors' funds to purchase real estate, luxury vehicles, and to fund investment and cryptocurrency accounts for their personal use.
Prosecutors had argued for a 10-year prison term. The Department of Justice is considering whether to appeal the sentence.
Eesti Ekspress reported that the businessmen and their lawyers claimed that the investors did not suffer losses.
Forfeited assets will be available for a remission process to compensate victims, with details to be announced at a later date.
The U.S. Criminal Division also thanked the Police and Border Guard's (PPA) Cybercrime Bureau, the Ministry of Justice and Digital Affairs, and the Prosecutor General for their support, assistance, and cooperation with the investigation and the extradition of Turõgin and Potapenko to the U.S. for trial.
Turõgin and Potapenko were arrested in Tallinn on November 20, 2022, in a joint operation carried out by the FBI and the PPA, and on May 28, 2024, Estonian authorities handed the pair over at Tallinn Airport to U.S. representatives, to be extradited to that country.
Cryptocurrency mining makes use of specialized computers to validate and record transactions on a blockchain network, with newly generated cryptocurrency for the miners being the payoff.
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Editor: Andrew Whyte
