The co-founders of the defunct crypto mining service HashFlare asked a US judge to spare them additional prison time after admitting to wire fraud, but prosecutors said they deserve a decade in prison for orchestrating a $577 million Ponzi scheme.

In a sentencing memo submitted on Wednesday to Seattle Federal Court Judge Robert Lasnik, prosecutors argued Sergei Potapenko and Ivan Turõgin each deserve 10 years in prison for their “horrible crime” that caused about $300 million in victim losses.

Prosecutors argued that a decade-long sentence would be just, as HashFlare was the largest fraud the court had ever tried. Potapenko and Turõgin said in their sentencing memo filed the same day that the sentence would be excessive, citing their cooperation and time already served in Estonian custody.

The pair was arrested in Estonia in November 2022 and was behind bars for 16 months before being extradited to the US in May 2024, where they pleaded guilty to conspiracy to commit wire fraud. They are out on bail in the US with their sentencing hearing set for Aug. 14.

HashFlare didn’t cause losses, founders argue

Lawyers for Potapenko and Turõgin argued in their joint sentencing memo 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They argued that 390,000 customers who spent $487 million on HashFlare mining contracts have since withdrawn $2.3 billion, and claimed customers haven’t experienced as much financial hardship as the prosecutors have made out.

The duo said every potential victim will be paid in full, likely from the more than $400 million worth of assets forfeited as part of their plea deal in February.

Pair committed “horrible crime,” prosecutors say

In their sentencing submission, prosecutors focused on the sheer size and scale of HashFlare’s fraud, calling it a “horrible crime” that caused around $300 million in victim losses, with much of the proceeds used to fund Potapenko and Turõgin’s “lavish lifestyles.”

They said the pair sold $577 million worth of mining contracts to about 440,000 customers between 2015 and 2019, posting fake investor returns and paying them out with funds from newer customers.

Source: Arkham Intelligence

“HashFlare proved to be a classic Ponzi scheme,” prosecutors said.

They added that the sentence must “reflect the seriousness of the offense,” and serve as “adequate deterrence” to protect the public from future crimes of a similar nature.

Related: Crypto scammer gets 12 years after reneging on restitution deal

Prosecutors dismissed the idea that an Estonian court should have heard the case, noting that over 50,000 of HashFlare’s 440,000 customers were based in the US and collectively invested more than $130 million into the scheme.

HashFlare founders want to return home

Potapenko and Turõgin are still seeking deportation to their native Estonia — prompting potential implications for how US courts handle foreign nationals in cross-border crypto crime cases.

Despite a court ordering them to stay in the US, the pair said in April that they received a letter from the Department of Homeland Security directing them to “deport immediately” — causing considerable confusion over their futures.

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