HashFlare Duo Sentenced to Time Served in Fraud Case

Having already served 16 months in custody, they were sentenced in Seattle to time served, a $25,000 fine each, and 360 hours of community service, with supervised release in Estonia. Prosecutors originally asked for 10 years, and are considering an appeal. The pair allegedly fabricated mining data and used new investor funds to pay earlier customers, though over $400 million in assets will be forfeited. Meanwhile, Terraform Labs co-founder Do Kwon pleaded guilty to two felony fraud charges tied to the 2022 Terra collapse, and agreed to $19 million in penalties. While he faces up to 25 years, prosecutors will not recommend more than 12 years. His sentencing is set for Dec. 11.

HashFlare Leaders Get Time Served

The founders of HashFlare, Sergei Potapenko and Ivan Turõgin, have avoided more jail time after admitting their roles in what prosecutors described as a $577 million Ponzi scheme. The pair already spent 16 months in custody, and were sentenced on Tuesday in Seattle Federal Court by Judge Robert Lasnik to time served, along with a $25,000 fine each and 360 hours of community service. They will serve their supervised release in Estonia, their home country.

The US Department of Justice is considering whether to appeal the sentence, as prosecutors originally wanted a 10-year prison term. Potapenko and Turõgin’s defense argued for time served, which the judge ultimately granted. The men were arrested in Estonia in November of 2022, held for 16 months, and extradited to the United States in May of 2024, where they pleaded guilty to conspiracy to commit wire fraud.

Press release from the US DOJ

Seattle prosecutors called it the largest fraud case they ever tried, due to the scale of the operation between 2015 and 2019. They accused the pair of running a “classic Ponzi scheme” through HashFlare, by fabricating dashboards to misrepresent mining capacity and profits, and using new customer funds to pay earlier investors. Acting US Attorney Teal Luthy Miller said the scheme’s “glitzy” front masked diversions of millions of dollars for personal luxuries, including Bitcoin purchases, real estate, cars, jewelry, and over a dozen private jet trips.

Ponzi scheme structure (Source: Hudson Intelligence)

However, the defense pointed out that a lot of the alleged harm was offset by asset forfeitures and customer withdrawals. As part of their plea deal, the two agreed to forfeit over $400 million in assets, and they mentioned that 390,000 customers withdrew $2.3 billion after spending $487 million on HashFlare contracts.

The case took an unusual turn earlier this year when the Department of Homeland Security reportedly directed the men to “deport immediately,” despite a court order to stay in the US until sentencing. Both wanted to return to Estonia, which they will now be able to do.

Do Kwon Pleads Guilty

Meanwhile, Terraform Labs co-founder Do Kwon changed his plea from not guilty to guilty on two counts of wire fraud and conspiracy to defraud in the United States. The move came during a Tuesday hearing in the US District Court for the Southern District of New York, where Kwon waived his right to trial on two of the nine charges he faced and agreed to a plea deal that would include $19 million in financial penalties. 

Post from Inner City Press

While the two felony charges could carry a combined sentence of up to 25 years if served consecutively, the reported agreement would see prosecutors avoid recommending more than 12 years in prison. His sentencing is scheduled for Dec. 11, and Judge Paul Engelmayer explained that the final decision on sentencing will rest with the court.

Kwon was indicted in March of 2023 on charges including securities fraud, market manipulation, money laundering, and wire fraud, all tied to his role in the collapse of Terra in 2022. After the crash, he evaded authorities for months before being arrested in Montenegro for trying to use falsified travel documents. He served four months in a Montenegrin prison while both the US and South Korea sought his extradition. He was ultimately handed over to US authorities in December 2024, where he initially pleaded not guilty to all charges and stayed in custody without bail.

Do Kwon

The reason for Kwon’s decision to change his plea after several months is still unclear. Court filings indicate that US prosecutors and Kwon’s legal team engaged in discussions over pretrial motions and related matters. 

So far, the Southern District of New York took a tough stance on high-profile crypto-related cases, with former FTX CEO Sam Bankman-Fried receiving a 25-year sentence in 2024. Tornado Cash co-founder Roman Storm was also recently convicted on related charges and could face a lengthy prison term when sentenced.