Founders of cloud mining service HashFlare arrested for $575 million fraud

Estonian law enforcement authorities have detained two founders of HashFlare, a private cloud-based cryptocurrency mining service. They are suspected of participating in a $575 million fraudulent scheme.

The HashFlare service was created in 2015 and allowed users to rent cloud power for mining cryptocurrencies. At one time, the company could be called one of the leaders in its field, but in 2018 the service ceased to exist. According to the U.S. Department of Justice, the entire company was just a "multi-faceted scam" in which "hundreds of thousands of people" lost funds.

The court document alleges that HashFlare employees, led by Sergey Potapenko and Ivan Turygin, attracted clients and persuaded them to enter into cloud rental agreements, but this was just a scam. Also, the funds of the victims were attracted to a shell bank for working with Polybius Bank cryptocurrencies.

With the proceeds of crime, the defendants bought 75 properties and 6 luxury cars. They also found cryptocurrency wallets and thousands of devices for mining digital assets.

“The defendants took advantage of the attractiveness of cryptocurrencies for investors and the high level of opacity in cloud mining. The scale of this pyramid was truly amazing,” said Nick Brown, Attorney for the Western District of Washington.

Law enforcement charged Estonians with conspiracy to commit electronic fraud, 16 counts of fraud and 1 count of money laundering using shell companies and forged documents. If extradited to the US, they could face up to 20 years in prison.

Earlier in Ukraine, the activities of a large fraudulent structure for investments in cryptocurrencies were suppressed. More than 2 people were involved in the scheme.