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US prosecutors have appealed the sentences handed down to the co-founders of HashFlare, the Estonia-based crypto mining service exposed as a Hashflare Ponzi scheme worth $577 million. The government filed its appeal with the Ninth Circuit on Tuesday, arguing that the penalties imposed earlier this month by a Seattle federal court were far too lenient.
Sergei Potapenko and Ivan Turõgin, both extradited from Estonia in May 2024, had pleaded guilty to conspiracy to commit wire fraud. They spent 16 months in custody in their home country following their arrest in October 2022. On August 12, Judge Robert Lasnik sentenced them to time served, a $25,000 fine, and 360 hours of community service, to be completed in Estonia while under supervised release.
Prosecutors had sought a 10-year prison term, describing the case as “the most significant fraud the court had ever tried.” They argued that the Hashflare Ponzi scheme inflicted severe harm on victims and set a troubling precedent if not met with serious consequences.
“This case isn’t just about one company—it’s about deterrence,” — Assistant US Attorney Seth Wilkinson, in court filings.
HashFlare, which operated between 2015 and 2019, sold cloud mining contracts that purported to generate returns from cryptocurrency mining. Prosecutors alleged that Potapenko and Turõgin fabricated performance dashboards to show investors inflated mining capacity and returns.
In reality, payouts to existing members came primarily from funds supplied by new customers as a structure prosecutors called “a textbook example of a Hashflare Ponzi scheme.”
While defense lawyers admitted to overstating mining capacity, they claimed customers ultimately profited thanks to the rise in crypto prices after the scheme collapsed. They also pointed to a February plea agreement that secured more than $400 million in forfeited assets, which they said would fully repay victims.
Prosecutors disputed those claims, alleging that the financial data was manipulated and that many victims faced lasting financial damage.
The outcome of the Hashflare Ponzi scheme trial has reignited debate over whether regulators and courts are doing enough to deter fraud in the digital asset industry.
Blockchain investigator ZachXBT, who has tracked multiple high-profile frauds, said on X (formerly Twitter) in June that “weak enforcement and light sentencing only embolden bad actors to launch the next scam.”
Similarly, Taylor Monahan, a prominent crypto security researcher, warned that inconsistent enforcement which is sometimes harsh, sometimes lax creates uncertainty. “The pendulum has swung too far toward underreaction,” she told Cointelegraph.
The leniency in the Hashflare Ponzi case sentencing stands in contrast with other recent cases. In July, former rugby player Shane Donovan Moore was sentenced to two-and-a-half years in prison for defrauding investors of $900,000 through a mining scheme. And in June, Dwayne Golden received eight years for orchestrating a $40 million Ponzi involving EmpowerCoin, ECoinPlus, and Jet-Coin.
The appeal comes as crypto crime losses reach unprecedented levels. Data published last month showed that the first half of 2025 recorded higher losses than any previous six-month period, nearly equaling the total for all of 2024.
Analysts say the outcome of the Hashflare Ponzi scheme appeal will be closely watched, as it could set a precedent for how US courts balance leniency against deterrence in complex digital asset frauds.
“The credibility of crypto markets depends on accountability,” — John Reed Stark, former SEC enforcement attorney, told CNBC. “If billion-dollar frauds end with little more than fines and community service, trust in the system erodes further.”
The Ninth Circuit will now review whether the sentences for Potapenko and Turõgin should be reconsidered. If prosecutors succeed, the co-founders could face substantially harsher penalties, underscoring the government’s effort to send a stronger message against large-scale crypto fraud.
For crypto investors, the case underscores a persistent risk: while regulators have opened the door to greater institutional adoption, high-profile scams like the Hashflare Ponzi scheme continue to reveal gaps in enforcement. Until courts consistently impose strict consequences, experts warn, the cycle of fraud may remain a feature of the digital asset landscape.
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