The Securities and Exchange Commission (SEC) has filed charges against 11 individuals for their alleged involvement in the creation of the Forsage platform, a “fraudulent cryptocurrency pyramid scheme.”
Charges were filed in a U.S. District Court in Illinois on Monday, with the SEC alleging that the platform’s founders and promoters used “fraudulent cryptocurrency Ponzi and pyramid scheme” to raise more than $300 million. from “millions of retail investors around the world.”
The SEC complaint claims that Forsage was modeled in such a way that investors would be financially rewarded for recruiting new investors to the platform in a “typical Ponzi structure,” which spanned multiple countries, including the United States and Russia.
According to the SEC, a Ponzi scheme is an investment fraud that pays existing investors with funds raised from new investors. These schemes often ask new investors to promise to invest the funds in opportunities that generate high returns for little risk.
In the court document, the SEC stated that:
“The Forsage platform was not selling or purporting to sell any actual and consumable products to bona fide retail customers during the relevant time period and had no apparent source of income other than funds received from investors. The main way for investors to make money from Forsage was to recruit others into the scheme.”
According to the SEC, Forsage’s alleged Ponzi scheme works, firstly, by allowing new investors to create a cryptocurrency wallet and buy Forsage smart contract “slots.”
Those slots would entitle them to earn compensation from other people they recruited into the scheme, called “downlines,” and also from the Forsage investor community in the form of profit sharing, called “spillovers.”
Carolyn Welshhans, Acting Head of the Crypto Assets and Cybernetics Unit of the SEC, called Forsage a “fraudulent pyramid scheme launched on a large scale and aggressively marketed to investors.”
He also added that decentralized technologies cannot act as an escape route for illegal conduct:
“Fraudsters cannot circumvent federal securities laws by focusing their schemes on smart contracts and blockchains.”
In addition to the four founders, including Vladimir Okhotnikov, Jane Doe aka Lola Ferrari, Mikhail Sergeev and Sergey Maslakov, The SEC complaint also listed seven promoters, three of whom were part of a United States-based promotional group called “Crypto Crusaders.”
The 11 individuals have been charged with violating “Unregistered Offers and Sales of Securities” under Section 5 A and C and “Fraud” under Section 17(a) (1 and 3) of the Securities Act. from United States. The defendants have also been charged with “Fraud” under Section 10 BC of the United States Securities Act.
The Ponzi structure reached the massive scale it did because of retail investors buying into the model over the past two years, Welshhans said.
In September 2020, Forsage was the subject of cease and desist orders by the Philippine SEC. In March 2021, the platform also received cease and desist orders from the Montana Securities and Insurance Commissioner.
Forsage’s YouTube channel shows that his platform was promoted just ten days ago. The platform’s Twitter account also appears to be active.
Cointelegraph reached out to Forsage for comment on the matter, but did not receive an immediate response.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
Keep reading:
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.