The creators of HashFlare have been accused of taking part in a scheme to launder money and commit crypto fraud of up to $575 million.
The two creators of the now-defunct cloud Bitcoin mining service HashFlare were detained in Estonia on suspicion of participating in a $575 million crypto fraud scheme.
This includes getting victims to sign “fraudulent equipment leasing contracts” through HashFlare and enticing other victims to put money into a phony virtual currency bank named Polybius Bank.
The two are also charged with planning to use 75 houses, six luxury cars, thousands of cryptocurrency mining devices, cryptocurrency wallets, and other methods to launder their “criminal gains.”
The scale and complexity of the alleged plan were described by U.S. Attorney Nick Brown for the Western District of Washington as really amazing.
“These defendants capitalized on both the allure of cryptocurrency and the mystery surrounding cryptocurrency mining, to commit an enormous Ponzi scheme,” he said.
The indictment claims that despite HashFlare’s claims to be a “massive crypto mining enterprise”, it only mined at a rate of less than 1% of that rate and paid out withdrawals by buying Bitcoin from third parties rather than from profits from mining operations.
The HashFlare founders face up to 20 years in prison if found guilty of conspiracy to commit wire fraud, 16 charges of wire fraud, and one count of conspiracy to launder money by using shell companies, fictitious invoices, and contracts.
A grand jury in the Western District of Washington produced an 18-count indictment on October 27 that was unsealed on November 21 in relation to Potapenkos and Turgins’ alleged involvement.
Customers that opted into the allegedly fraudulent schemes of HashFlare, HashCoins OU, and Polybius are being contacted by the FBI as part of their investigation into the case.
About HashFlare
HashFlare was a cloud mining startup founded in 2015 with the intention of allowing clients to lease the company’s hashing power in order to mine cryptocurrencies and receive an equal portion of its revenues.
However, the entire mining operation, led by founders Sergei Potapenko and Ivan Turin, was a part of a “multi-faceted conspiracy” that “defrauded hundreds of thousands of victims,” according to a statement from the US Department of Justice citing court documents.
Potapenko and Turgin formed HashCoins OU, the parent business of HashFlares, in 2013, and HashFlare debuted its mining services in 2015. It first provided contracts for scrypt and SHA-256 (Bitcoin). Options for ETHASH, DASH, and ZCASH came next.
The company was accused of being fake, but this was never officially established. HashFlare stopped its BTC mining services by July 2018 due to difficulty making money in the face of market swings.
The last time HashFlare made a public announcement was on August 9, 2019, when they stated they were stopping the selling of ETH contracts because “the present capacity has been sold out.”
Customers who paid in advance for the remaining annual contract payments did not receive a refund. The platform’s portfolio of other crypto assets continued to function normally.
Although the company teased more announcements and pledged to continue operations in the “very near future,” nothing about what had transpired was ever made public, and HashFlare silently vanished.
