SEC accuses 11 people of over $300 million of crypto ‘pyramid scheme’

The Securities and Exchange Commission (SEC) has indicted 11 people for their alleged role in creating a “fraudulent pyramid scheme” of the Forsage platform.

The charges were filed in a United States District Court in Illinois on August 1, with the SEC alleging that the platform’s founders and promoters used the “fraudulent crypto pyramid and Ponzi scheme” to raise over $300 million from “millions of retail investors”. worldwide.”

The SEC complaint says Forsage was modeled such that investors would be financially rewarded by recruiting new investors to the platform in a “typical Ponzi structure,” which spanned multiple countries, including states. United 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 solicit new investors by promising to invest funds in opportunities that generate high returns for little risk.

In the court filing, the SEC said:

“This [the Forsage platform] did not sell or purport to sell any actual consumable products to bona fide retail customers during the relevant period and had no apparent source of income other than funds received from investors. The main way for investors to make money with Forsage was to recruit other people into the program.

According to the SEC, Forsage’s alleged Ponzi scheme works by first allowing new investors to build a portfolio of crypto-assets and buy “slots” from Forsage’s smart contracts.

These slots would entitle them to earn compensation from others they recruited into the program, called “downlines,” and also from the Forsage investor community in the form of profit sharing, called “spinoffs.”

Carolyn Welshhans, acting head of the SEC’s Crypto Assets and Cyber ​​Unit, called Forsage a “fraudulent pyramid scheme launched at scale and aggressively marketed to investors.”

She also added that decentralized technologies cannot serve as a loophole for illegal behavior:

“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 included seven promoters, three of whom were part of a US-based promotional group called the “Crypto Crusader”. .

The 11 people were 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 US Securities Act. The defendants were also charged with “fraud” under Section 10 BC of the US Exchange Act.

These efforts have allowed the Ponzi scheme to capture the massive scale it has achieved with retail investors who have bought into the model over the past two years, Welshhans said.

Related: How to Identify and Avoid a Crypto Pump-and-Dump Pattern?

In September 2020, Forsage was subject to cease and desist orders from the Philippines 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 their platform was promoted just ten days ago. The platform’s Twitter account also appears to be active.

Cointelegraph contacted Forsage to provide a comment on the matter, but did not receive an immediate response.