How The SEC Uncovered A $300 Million Crypto Pyramid Scheme

According to a press release issued by the U.S. Securities and Exchange Commission (SEC) on August 1st, eleven people have been charged for their roles in creating and promoting Forsage, a fraudulent crypto pyramid and Ponzi scheme that brought up more than $300 million from millions of retail investors across the globe.

The decentralized finance (DeFi) ecosystem and initial coin offerings (ICOs) have contributed to Ethereum’s growth in a number of ways. The Forsage gifting pyramid scam is one such strategy that cryptocurrency users are now debating.

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In pyramid schemes, which are types of financial fraud, top-level players in a hierarchical network enlist and benefit from a growing base of newly deceived members. On the other hand, a Ponzi scheme often only demands an initial payment from its victims, with promised returns at a later payment date. That is the key distinction between these two scams.

However, using smart contracts that operated on the Ethereum, Tron, and Binance blockchains, Forsage.io was a website that let millions of retail investors transact. It was created in January 2020 by Vladimir Okhotnikov, Jane Doe, a/k/a Lola Ferrari, Mikhail Sergeev, and Sergey Maslakov.

The working theory of Forsage was that there was nothing to sell. Therefore, the only way to get money is to persuade others to join Forsage.

 SEC Charges Against 11 People For promoting Forsage

The four Forsage founders, three American promoters that the founders hired to advertise Forsage on their websites and social media platforms, and a number of the “Crypto Crusaders” members are all included in the SEC’s chargers. Moreover, the advertising campaign’s strategy was carried out in the U.S. from at least five separate states.

For more than two years, Forsage reportedly functioned as a pyramid scam in which investors made money by enlisting others as participants, according to the SEC’s statement. In a typical Ponzi scheme, Forsage illegally exploited assets from new investors to pay off prior investors.

The Securities and Exchange Commission of the Philippines and the Montana Commissioner of Securities and Insurance both took cease-and-desist actions against Forsage for operating as a fraud in September 2020 and March 2021, respectively. Still, Forsage allegedly continued to promote the scheme while disputing the allegations in many YouTube videos and other means.

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In addition to the four founders, seven more people are accused of breaking the federal securities laws’ anti-fraud and registration requirements in the complaint, which was submitted to the Northern District of Illinois’ United States District Court. In its case, the SEC asks for civil fines, disgorgement, and injunctive relief.

Nonetheless, two of the defendants, Ellis and Theissen, settled the charges without admitting or denying the accusations and consented to be permanently restrained from engaging in specific activities as well as violating the charged provisions in the future.

               Featured image from Flickr, chart from Tradingview.com