Potapenko and Turõgin used shell companies to launder the proceeds of the fraud.
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Two Estonian citizens who ran HashFlare were arrested for defrauding investors of a total of $575 million (roughly Rs. 4,668 crore). HashFlare, the cloud mining service that was founded in 2015 had shut down its Bitcoin mining hardware and cancelled related contracts after claiming to allow customers to lease company hashing power to mine cryptocurrencies and gain an equivalent share of their profits. The company was seen as one of the leading brands in the business at the time but closed its mining operations in July 2018.
According to a statement from the US Department of Justice citing court documents, the entire mining operation was run by founder Sergei Potapenko and Ivan Turõgin. This includes convincing victims to get into a fake equipment rental contract through HashFlare and persuade other victims to invest in a fake virtual currency bank called Polybius Bank.
The couple is also accused of conspiring to launder their "criminal results" through 75 properties, six luxury vehicles, a cryptocurrency wallet, and thousands of cryptocurrency mining machines.
US attorney Nick Brown for Washington's Western District said the alleged size and scope of the scheme was "completely astonishing". "These defendants took advantage of the capacities of cryptocurrencies and the mysteries surrounding cryptocurrency mining, to carry out a very large Ponzi scheme," he said.
The founders of HashFlare have been charged with conspiracy to commit wire fraud, 16 charges of wire fraud, and one conspiracy charge for money laundering using a shell company and invoices and fake contracts, and could face up to 20 years in prison if found guilty.
HashFlares' parent company, HashCoins OU was founded by Potapenko and Turõgin in 2013, while HashFlare launched a mining service in 2015.
According to the indictment, the pair claimed HashFlare was a "massive crypto mining operation," however, it is suspected the company is mining at a rate of less than 1 percent less than it claims, and paid withdrawals by buying Bitcoin from third parties, rather than profit from mining operations.
In July 2018, CoinTelegraph reported, HashFlare announced the termination of BTC mining services, citing difficulties in generating revenue amid market fluctuations. Other crypto assets available on the platform portfolio continued to operate as usual. The company was accused of fraudulent practices but the allegations were never formally proven.
The last public communication from HashFlare came in 2019 via a post on August 9 where they announced that they were suspending sales of ETH contracts because "the current capacity has been sold out."
The company pledged to resume activities in "near times" and tease through further announcements, but nothing was disclosed to the public about what has happened and HashFlare had quietly disappeared.
The FBI is currently investigating the case and is seeking information from customers who participated in the alleged fraudulent scheme of HashFlare, HashCoins OU, and Polybius. There were 18 charges for the alleged involvement of Potapenkos and Turõgin being returned by a jury in Washington's Western District on October 27 and sealed on November 21.