The US Securities and Exchange Commission (SEC) has charged 11 individuals linked to smart contract company Forsage, including founders last known to be living in Russia, accusing them of running a cryptocurrency Ponzi scheme.
This is the latest setback for the already suffering market that lost over $1tn in value earlier this year amidst the ongoing crypto crash.
The SEC filed its complaint against Forsage in the United States District Court in the Northern District of Illinois.
It states that Forsage launched in 2020 as a website aimed at US and worldwide retail investors. The website allowed millions of retail investors to enter into transactions via smart contracts that operated on the Ethereum, Tron, and Binance blockchains.
Investors received compensation through recruiting others to the alleged pyramid scheme. They also got compensation from the larger investor community in profit sharing payments or ‘spillovers’. Essentially, the more people investors recruited to join Forsage, the more money they were told they could get.
The scheme ran for over two years, despite cease-and-desist actions from regulators in the Philippines. Forsage allegedly carried on promoting the schemes, whilst denying the SEC’s fraud claims.
Retail investors raised $300m through the scheme. Funds were raised through the unregistered offer and sale of securities in Forsage.
The SEC charged 11 individuals for taking part in the Forsage crypto scheme. That included charges against the four founders Vladimir Okhotnikov, Jane Doe aka Lola Ferrari, Mikail Sergeev and Sergey Maslakov. Forage founders Sergeev and Maslakov’s last residence were in Russia, according to the SEC.
The Wall Street watchdog said Okhotnikov and Lola Ferrari had last been known to residing in the Republic of Georgia and in Indonesia respectively.
The SEC also filed charges against seven individuals for violating the registration and anti-fraud provisions of the federal securities laws by promoting the alleged Ponzy scheme.
Those charged were named as Cheri Beth Bowen, Ronald R. Deering, Samuel D. Ellis, Mark F. Hamlin, Carlos L. Martinez, Alisha R. Shepperd, and Sarah L. Theissen.
The SEC want to impose civil penalties and seek injunctive relief and disgorgement.
“As the complaint alleges, Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors,” Carolyn Welshhans, acting chief of the SEC’s Crypto Assets and Cyber Unit, said. “Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains.”
This is the latest alleged Ponzi scheme in a long string of fraud cases that have haunted the cryptocurrency industry.
Bitconnect is one clear example of a similar scheme. The US Department of Justice described the cryptocurrency Bitconnect as a “textbook Ponzi Scheme” in 2021. The SEC accused Bitconnect of defrauding retail investors over of $2bn and issued a new suit last year. The scheme’s promoters and executives are still being prosecuted in the US. Authorities are on the hunt for its founder.
Cryptocurrency Onecoin was also discovered to be fake. A FinCEN files leak in 2020 named the currency as a classic Ponzi scheme. Onecoin had raised over $4bn worldwide before it was shut down in 2017.
GlobalData is the parent company of Verdict and its sister publications.