“HashFlare did not own or lease the virtual currency mining equipment necessary to service its contracts,” the indictment reads. “In reality, during the course of its operation, HashFlare engaged in virtual currency mining activity at a rate estimated to be less than 1% of the hashrate sold to customers for Bitcoin mining and less than 3% of the hashrate sold to customers for altcoin mining.”
Financial Maneuvering
According to the indictment, Potapenko and Turōgin opened accounts at banks around the world, often in the names of shell companies or other people working with them, and transferred victims’ funds to those accounts. At times, the defendants would submit false information and fabricated documents to the banks claiming that the shell companies provided products and services to HashFlare, prosecutors said.
Potapenko and Turōgin also allegedly refused to repay customer funds when contacted, implementing minimum and maximum withdrawal amounts on HashFlare. The defendants would sometimes repay customers with crypto they bought on the open market, according to prosecutors.
2 Estonians Charged In $575M Crypto : The Polybius Scheme
In a separate scheme that began in May 2017, Potapenko and Turōgin offered investments in a company called Polybius, saying they planned to form a bank that specialized in virtual currency, according to the indictment. They brought in about $25 million in investment proceeds and used $7 million from HashFlare to start Polybius, prosecutors said, noting that most of the proceeds from Polybius were transferred to other bank accounts and crypto wallets controlled by Potapenko, Turōgin and others.
