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Federal Prosecutors Challenge "Time Served" Sentencing in Landmark Crypto Fraud Case

Federal Prosecutors Challenge "Time Served" Sentencing in Landmark Crypto Fraud Case

ainvest2025/08/27 22:00
By:Coin World

- U.S. prosecutors appeal lenient "time served" sentences for HashFlare co-founders, who admitted to a $577M crypto Ponzi scheme. - Defendants’ defense cited asset forfeiture and rising crypto prices as restitution, but prosecutors dismissed these claims as fabricated. - Legal experts warn weak enforcement in crypto fraud cases risks emboldening scammers, as seen in rising 2025 losses. - The appeal’s outcome may shape future sentencing norms, with courts assessing Judge Lasnik’s adherence to guidelines and

Federal prosecutors in the United States have filed an appeal against the “time served” sentences given to the co-founders of HashFlare, a cryptocurrency mining service that prosecutors describe as a $577 million Ponzi scheme. Sergei Potapenko and Ivan Turõgin, Estonian nationals, were extradited to the U.S. in May 2024 after spending 16 months in custody in Estonia following their October 2022 arrest. They pleaded guilty to conspiracy to commit wire fraud. On August 12, Judge Robert Lasnik sentenced both men to time served, imposed a $25,000 fine, and ordered 360 hours of community service as part of supervised release. Prosecutors are seeking a 10-year prison term for each defendant, arguing that the fraud caused serious harm to victims and set a precedent for what they describe as the most significant fraud case in the Western District of Washington [1].

The HashFlare scheme operated between 2015 and 2019, during which it reportedly generated over $577 million in sales. The co-founders presented fake dashboards that displayed fabricated mining capacity and investor returns. Prosecutors allege that early investors were paid out using funds from newer investors, a textbook definition of a Ponzi scheme. Potapenko and Turõgin’s defense team countered that victims ultimately received cryptocurrency worth more than their initial investments due to the rise in crypto prices over the years. Additionally, they pointed to a $400 million asset forfeiture from their February plea deal as a means of full restitution. However, prosecutors have dismissed these arguments, claiming the data was fabricated [1].

The sentencing outcome has drawn attention from blockchain crime investigators and legal experts, who highlight the broader issue of weak enforcement actions against crypto fraudsters. Investigators like ZachXBT and Taylor Monahan have warned that the lack of significant consequences for bad actors in the crypto space is contributing to the proliferation of scams. In June, both experts noted that U.S. regulators had abandoned several high-profile crypto fraud cases, creating a perception of leniency that emboldens scammers. This trend has led to a rise in crypto fraud, with losses reaching record levels in the first half of 2025 [1].

Legal analysis suggests that while the appeal is likely to face scrutiny, the outcome is uncertain. Ishita Sharma, a blockchain and crypto lawyer, noted that the Ninth Circuit generally defers to district judges unless a sentence is deemed unreasonable. She highlighted the court’s focus on whether Judge Lasnik followed the U.S. Sentencing Guidelines, the consistency of the decision with national fraud sentencing norms, and whether the leniency undermines deterrence in economic crimes [2]. The judge’s rationale for the time-served sentence included concerns about the defendants’ immigration status and the logistical challenges of managing their supervised release in Estonia. These factors, combined with the restitution already arranged, may have influenced the court’s decision [2].

The HashFlare case is part of a broader trend of high-profile crypto fraud convictions in the U.S. In July, former rugby player Shane Donovan Moore was sentenced to two-and-a-half years for defrauding over 40 investors out of $900,000 in a mining-based Ponzi scheme. Similarly, Dwayne Golden received an eight-year prison term in June for his role in a $40 million Ponzi scheme involving three crypto firms. These cases underscore the increasing regulatory and legal focus on cryptocurrency fraud as the industry matures and regulatory frameworks evolve [1]. The outcome of the HashFlare appeal will likely carry significant implications for future sentencing decisions in similar cases, shaping perceptions of accountability in the rapidly expanding crypto ecosystem.

Source: [1] US appeals time served sentences for HashFlare co-founders [2] US Prosecutors Challenge 'Unusually Lenient' Sentence in

Federal Prosecutors Challenge
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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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