The US Securities and Commission (SEC) has charged 11 individuals for allegedly duping scores of customers of $300 million as part of Forsage’s so-called crypto pyramid scheme.
The regulators have recently stepped-up crackdown on dubious companies cheating clients.
Those charged include four Forsage founders: Vladimir Okhotnikov, Jane Doe a.k.a. Lola Ferrari, Mikhail Sergeev, and Sergey Maslakov. They were last known to be living in Russia, Georgia, and Indonesia.
Forsage, launched in January 2020, allowed millions of retail investors to transact via smart contracts that permit trading without the supervision of a central authority.
These smart contracts were operated on the Ethereum, Tron, and Binance blockchains.
It is alleged that Forsage had run an illegal pyramid scheme for more than two years to raise money from new clients and pay the existing investors.
"As the complaint alleges, Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors," said Carolyn Welshhans, acting chief of SEC’s Crypto Assets and Cyber Unit. She emphasized that "Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains."
Forsage was one of the popular decentralized Ethereum (ETH) blockchain applications. According to Dune data analytics, ETH tokens worth $20 million were sent to Forsage in a single day in July 2020.
In the same year, the Philippines’ Securities and Exchange Commission (SEC) had sent the company a cease-and-desist order for fraudulently operating in the country.
In 2021, the Montana Commissioner of Securities and Insurance had sent a similar order to Forsage.
However, the defendants allegedly continued to promote the scheme and denied any wrong-doings through various communication channels, including YouTube videos. Investors have allegedly rejected that Forsage is a Ponzi scheme and kept promoting it on social media platforms.
“All payouts to earlier investors were made using funds received from later investors,” the SEC said.
Besides the four Forsage founders, the SEC also charged Cheri Beth Bowen of Pelahatchie, Mississippi, Ronald R. Deering of Coeur d’ Alene, Idaho, Samuel D. Ellis of Louisville, Kentucky, Mark F. Hamlin of Henrico, Virginia, Carlos L. Martinez of Chicago, Illinois, Alisha R. Shepperd of Dunedin, Florida., and Sarah L. Theissen of Hartford, Wisconsin for violating the registration and anti-fraud provisions of the US federal securities laws.
Ponzi schemes are fake schemes to lure customers by pitching fast money-making schemes, especially pertaining to new technologies, such as blockchain, smart contracts and decentralized apps, through various communication channels, including social media.