The co-founders of the defunct cryptocurrency mining service HashFlare, after admitting to telecom fraud, requested U.S. judges to waive additional penalties, but prosecutors believe they should be sentenced to 10 years in prison for manipulating a $577 million Ponzi scheme.

In a sentencing memorandum submitted to Judge Robert Lasnik of the Seattle Federal Court, the prosecution stated that Sergei Potapenko and Ivan Turõgin should each be sentenced to 10 years in prison for their 'serious crimes' causing approximately $300 million in victim losses.

The prosecution noted that the 10-year sentence is reasonable because HashFlare is one of the largest fraud cases this court has ever dealt with. Potapenko and Turõgin, in a memorandum submitted on the same day, claimed that this sentence is too lengthy, citing their prior detention in Estonia and cooperation with the investigation.

The duo was arrested in Estonia in November 2022 and, after being held for 16 months, were extradited to the U.S. in May 2024, where they have pleaded guilty. Their sentencing hearing is expected to take place on August 14.

The founders claimed HashFlare did not cause losses

The lawyers for Potapenko and Turõgin argued in their joint sentencing memorandum that, although they exaggerated HashFlare's mining capabilities, the profits obtained by the company's customers have far exceeded their initial investments due to the rise in cryptocurrency prices.

They mentioned that 390,000 customers purchased mining contracts worth $487 million and subsequently withdrew $2.3 billion, claiming that customers were not suffering from the severe economic distress described by the prosecutor.

The duo stated that all potential victims would be fully compensated, expected to come from over $400 million in assets seized from their plea agreement in February.

The prosecution stated that the two committed 'serious crimes'

The prosecution emphasized the scale of the HashFlare fraud case in its sentencing submission, calling it a 'serious crime' that resulted in approximately $300 million in victim losses, with most of the profits used for Potapenko and Turõgin's luxurious lifestyles.

They claimed that the two used funds from selling mining contracts worth $577 million between 2015 and 2019 to pay out through fake investment returns and new customer funds.

"HashFlare has proven to be a classic Ponzi scheme," the prosecution pointed out.

The prosecution added that the sentence must 'reflect the seriousness of the crime' and serve as 'sufficient deterrence' to protect the public from similar future crimes.

The prosecution refuted the claim that this case should be tried by the Estonian court, pointing out that over 50,000 of HashFlare's 440,000 customers are American, with total investments exceeding $130 million.

HashFlare founders hope to return home

Potapenko and Turõgin are still seeking to be returned to their home country, which may have potential implications for how U.S. courts handle cases of cross-border cryptocurrency crime involving foreign nationals.

Although the court ordered them to remain in the U.S., the two stated in April that they received a letter from the Department of Homeland Security instructing them to 'immediately deport', leaving their future filled with uncertainty.