After serving 16 months of custody in Seattle, the defendants were given a sentence that included time served (a fine per person of $25,000), 360 hours community service and supervised release to Estonia. The prosecution originally requested 10 years and is considering an appeal. Both allegedly faked mining data, and then used investor money to pay previous customers. However, over $400,000,000 in assets are forfeited. Terraform Labs’ co-founder Do Kwon has pleaded guilty on two counts of felony fraud in connection with the collapse of Terra 2022 and accepted $19 million as penalties. Although he could face up to 25-years in prison, the prosecutors won’t recommend anything more than 12-years. The sentencing date is Dec. 11,
HashFlare Leaders Get Time Served
Sergei Potapenko, Ivan Turogin and the founders of HashFlare have avoided further jail terms after they admitted their involvement in a Ponzi scheme worth $577,000,000, as described by prosecutors. They had already served 16 months of custody and Judge Robert Lasnik sentenced them on Tuesday to the time they have spent in jail, a fine of $25,000 each, and 360 hours community service. The pair will be supervised in Estonia where they live.
US Department of Justice has decided to review the case, since prosecutors initially wanted a 10 year prison sentence. The defense of Potapenko, Turogin and their lawyers argued that time had been served. This was granted by the judge. They were detained in Estonia for 16 months and then extradited in 2024 to the United States, where they plead guilty of conspiracy to commit fraud by wire.
US DOJ Press Release
Seattle prosecutors referred to it as the biggest fraud case that they had ever attempted, due the size of the operation from 2015-2019. The pair was accused of operating a “classic Ponzi Scheme” via HashFlare by fabricating dashboards that misrepresented mining capacities and profits and paying earlier investors with new funds. The Acting US Attorney Teal Luthy Miller stated that the “glitzy front” of HashFlare masked millions of dollars in personal expenses, such as Bitcoin purchases, car and jewelry sales, real estate investments, and private jet travels.
Ponzi scheme structure ( Hudson Intelligence)
The defense argued that the asset forfeitures, and withdrawals by customers offset a large part of the harm alleged. In exchange for their guilty plea, both parties agreed to forfeit assets worth over $400 million. They also stated that after having spent $487 million, 390,000 HashFlare customers had withdrawn $2.3 billion.
The case took a strange turn in early this year, when it was reported that the Department of Homeland Security had ordered the men “to deport immediately” despite an order from a US court to remain until the sentencing. The men wanted to go back to Estonia and now they can.
Do Kwon pleads guilty
Do Kwon, Terraform Labs’ co-founder, changed his guilty plea to not guilty for two counts of conspiracy and wire fraud in the United States. The decision was made during a hearing on Tuesday in the US District Court of New York’s Southern District, when Kwon agreed to waive his right to trial for two of nine charges against him and accept a plea agreement that included $19 million financial penalties.
Inner City Press Post
The two felonies could have a maximum sentence of 25 years, if they were served in a consecutive manner. However, according to the report the prosecutors would not recommend recommending incarceration for more than 12 months. The sentencing of the defendant is set for December 11, with Judge Paul Engelmayer explaining that it will be up to the court.
Kwon, who played a role in Terra’s collapse in 2022, was charged in March 2023 with securities fraud, manipulation of the market, money laundering and wire fraud. He evaded the authorities for several months after the crash before being caught in Montenegro. While the US sought to extradite him, he spent four months in prison. In December 2024 he was handed to US authorities, who initially charged him with not being guilty of all the charges. He remained in jail without bail.
Do Kwon
It is unclear why Kwon changed his plea so suddenly after several months. The court filings show that US prosecutors engaged with Kwon’s legal team to discuss pretrial motions, related issues and other matters.
The Southern District of New York has taken a hard stance in high-profile cases involving crypto, and the former FTX Chief Executive Sam Bankman Fried received a 25 year sentence by 2024. Tornado Cash’s co-founder Roman Storm, who was recently found guilty of related charges, could also face a long prison sentence when sentenced.
