Just four months before the criminal sentence to run the $577 million cryptocurrency mining ponge scheme, the two Estonian founders of Hashfulle appeared to have been misrepresented by the US Department of Homeland Security (DHS).

In a joint letter to the court last week, lawyers for Sergei Potapenko and Ivan Tourogin told District Judge Robert Lasnik of the West District of Washington that both men had received “anxious communication” from the DHS and ordered them to leave immediately.

“Now is the time to leave the United States,” read an email to Potapenko and Tourogin dated April 11th. “DHS has ended your parole. Don’t try to stay in the US – the federal government will find you. Leave the US immediately.”

The email contained in a letter filed last week “has threatened both criminal prosecutions, civil fines, penalties and men with other legal options available to the federal government if they stayed in the country. It’s similar to an email that undocumented immigrants and US citizens have received over the past few days.

Ironically, Potapenko and Turogin are not in the United States of their own will. They were handed over from their hometown of Estonia in 2022 at the U.S. Department of Justice request, with an 18 count indictment tied to the hash flare scheme. They initially pleaded not guilty to all charges, but in February they both agreed to confiscate more than $400 million in assets, pleading guilty to one count of a conspiracy to commit wire fraud in order to sentence them to a maximum sentence of 20 years in prison. They both have been supplying bonds to the Seattle area since July last year.

“Ivan and Sergei didn’t want anything more than to go home soon, but they knew they also had to go to the court order to stay in King County,” Mark Vini, a partner at Reed Smith LLP and a lead lawyer for Penko, wrote to the court in the pair’s joint letter. Bini did not respond to Koindsk’s request for comment.

In his letter, Vini said the DHS email caused both Potapenko and Tourogin to “significant anxiety.”

“We and our clients have all seen the latest news. Immigration authorities have made mistakes, individuals who should not be detained have been detained and sometimes deported to places where they should not be deported,” Bini wrote.

Six days after Bini’s letter to the judge, the DOJ filed its own letter to the court, saying that the prosecutor coordinated with the DHS’s Homeland Security Investigation (HSI) division to secure a one-year postponement in the self-report order.

“This should provide enough time for the sentence to take place,” the prosecutor’s letter said.

DHS did not respond to Coindesk’s request for comment.

Potapenko and Turogin are scheduled to be sentenced in Seattle on August 14th. Their lawyers say they will demand that they be sentenced to service, meaning they don’t mean extra time in prison and be sent home to Estonia “quickly”;

Two Estonian citizens pleaded guilty yesterday to running a massive cryptocurrency Ponzi scheme that defrauded hundreds of thousands of investors worldwide, including in the United States.

The scheme involved a fraudulent crypto-mining service called HashFlare, resulting in investor losses of over $577 million.

Founders Agree to Forfeit $400M in Assets

According to court documents, Sergei Potapenko and Ivan Turõgin, both 40, sold contracts to customers, entitling them to a share of crypto mined by their purported crypto mining service.

Between 2015 and 2019, HashFlare’s sales totaled more than $577 million. However, the firm did not have the necessary computing power to perform most of the mining it claimed to carry out. To hide this, the company’s web-based dashboard displayed falsified data as customers’ supposed mining profits.

The fraudulent activities of the Estonian nationals extend beyond HashFlare. In 2017, the co-founders launched an Initial Coin Offering (ICO) for a project called Polybius, claiming it would establish a bank specializing in digital currency.

The initiative promised investors dividends from the bank’s future profits, leading to at least $25 million being raised. However, no such bank was ever created.

The perpetrators encouraged individuals to invest their savings in both companies, assuring them of substantial returns. Potapenko and Turõgin even distributed some profits to early investors to maintain the scheme’s credibility.

However, the companies failed to deliver the promised returns. The funds were instead redirected to various accounts and crypto wallets controlled by the two men. The proceeds were then used to purchase real estate and luxury vehicles and maintain investment and crypto accounts.

As part of their plea agreement, the duo will forfeit assets worth more than $400 million, which will be used in remission to compensate victims. Further details on this process will be announced at a later date.

The Guilty Plea

After investigating their fraudulent crypto operations, authorities apprehended Potapenko and Turõgin in Estonia in November 2022. At the time, the U.S. DOJ charged the duo with 16 counts of wire fraud and one count of conspiracy to commit money laundering.

Following their arrests, the U.S. sought their extradition, but an Estonian Circuit Court annulled the request in 2023, citing concerns over the conditions of U.S. detention facilities.

However, in January 2024, their deportation to the United States was again approved, resulting in their recent guilty pleas.

Both men admitted to one count of conspiracy to commit wire fraud and are scheduled for sentencing on May 8. They each face up to 20 years in prison, and the final conviction will be determined by a federal judge based on the U.S. Sentencing Guidelines and other legal factors.

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