The Securities and Exchange Commission has indicted 11 people in an alleged $300 million crypto pyramid scheme, highlighting how authorities are increasing enforcement in digital asset markets.
The Wall Street watchdog said the scheme known as Forsage raised money by using promoters to persuade millions of investors around the world to recruit others into the program.
“Forsage is a fraudulent pyramid scheme that has been launched on a large scale and aggressively marketed to investors,” said Caroline Welshans, acting head of crypto assets and electronic unit at SEC. “Scammers cannot circumvent federal securities laws by focusing their schemes on smart contracts and blockchain.”
The Securities and Exchange Commission has accused Forsage’s operators of raising $300 million in the United States and around the world as of at least January 2020 through an unregistered securities offering. The civil fee comes just weeks after the regulator accused a former employee of crypto exchange Coinbase of insider trading related to coin listings. The former Coinbase employee said through his attorney that he is “innocent of all wrongdoing.”
The cases underscore how the SEC applies existing securities rules to monitor the digital asset market, which its president, Gary Gensler, has called the “Wild West.”
The Securities and Exchange Commission said in a complaint filed in federal court in Illinois that Forsage “has not sold or purported to sell any actual and consumer product to honest retail customers during the relevant time period and has no apparent source of revenue other than money received from investors.”
The Securities and Exchange Commission said Forsage used smart contracts — computer programs that allow cryptocurrency to be traded without a central intermediary — to operate the system. According to the regulator, contracts traded on the Ethereum, Tron and Binance blockchains – digital ledgers widely used in the crypto industry.
Investors in the project will earn compensation from the others you have recruited and the individuals those people have attracted to the project. Investors also received profit-sharing fees from the wider community.
“All payments to prior investors were made using funds received from subsequent investors,” the SEC said.
A Forsage representative accessed via the group’s website, who describes himself as a volunteer for the decentralized organization, said the SEC’s allegations are “nonsense from crypto newcomers and are not true.”
The SEC’s charges include the four founders of Forsage – Vladimir Okhotnikov, Mikael Sergeev, Sergei Maslakov, and someone known by the pseudonym Lola Ferrari. The last known locations of Okotnikov and Ferrari were the Republic of Georgia and Indonesia, respectively. The last time Sergeev and Maslakov learned about their presence in Moscow. Individuals cannot be reached for comment.
The Securities and Exchange Commission (SEC) has also charged fees to three US-based promoters of the scheme, as well as members of a program promotion group called Crypto Crusaders which operates in at least five US states.