The Securities and Exchange Commission (SEC), has indicted 11 individuals for their involvement in the creation and operation of Forsage, a fraudulent crypto pyramid scheme platform.
On August 1, the United States District Court in Illinois filed the charges. The SEC alleges that the platform’s founders and promoters used the Ponzi scheme and fraudulent crypto pyramid to raise more $300 million from millions of investors around the world.
According to the SEC complaint, Forsage was designed so that investors could be financially rewarded for attracting new investors to the platform in “typical Ponzi structures,” which covered multiple countries including Russia.
The SEC defines a Ponzi scheme as an investment fraud in which existing investors are paid out with money collected from new investors. These schemes are often used to solicit new investors, promising high returns and little risk for funds.
The SEC stated in the court document that:
“It [the Forsage Platform] didn’t sell or purport it to sell any consumable product to bona-fide retail customers during that time period. It had no other source of revenue than funds received by investors.” Forsage’s primary source of income was the recruitment of others.
According to the SEC’s Ponzi Scheme, Forsage’s alleged Ponzi scheme involves allowing new investors to create a crypto-asset account and then purchasing “slots” from Forsage smart contracts.
These slots would allow them to receive compensation from other investors, known as “downlines”, as well as from the community, in the form profit sharing, which is known as “spillovers”.
Carolyn Welshhans, Acting Head of the SEC’s Crypto Assets and Cyber Unit, called Forsage “a fraudulent pyramid scheme launched at a large scale and aggressively promoted to investors.”
She added that decentralized technology cannot be used as an escape from illegal conduct.
Fraudsters can’t circumvent federal securities laws by focusing on smart contracts or blockchains.
The four founders are Vladimir Okhotnikov and Jane Doe, aka Lola Ferrari, Mikhail Sergeev and Sergey Maslakov. However, the SEC also complained about seven promoters who were part of a U.S-based promotional group called “Crypto Crusaders”.
The 11 defendants were charged with “Unregistered offers and sales of securities” under Section 5 A & C, and “Fraud” under Section 17(a (1 & 3) of US Securities Act. They were also charged with “Fraud”, under Section 10B-C of US Exchange Act.
Welshhans stated that this effort enabled the Ponzi structure capture the huge scale it had gotten from retail investors who bought into the Ponzi model in the past two years.
Related: How can you identify and avoid a cryptocurrency pump-and-dump scam?
Forsage was placed under cease-and-desist orders by the Philippines SEC in September 2020. The Montana Commissioner of Securities and Insurance issued cease and desist orders to Forsage in March 2021.
Forsage’s YouTube channel shows their platform was promoted just ten days ago. Also, the Twitter account of Forsage appears to be active.
Cointelegraph attempted to reach Forsage for comment, but was not immediately able to get a response.