SEC: Crypto Scammers Raised $300 Million Through “Book Pyramid Scheme and Ponzi Scheme”

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Yesterday, the US Securities and Exchange Commission filed a lawsuit against 11 people accused of creating and promoting a crypto pyramid and Ponzi scheme known as “Forsage”. The SEC announcement said the fraudulent scheme “raised more than $300 million from millions of individual investors around the world, including in the United States.”

The SEC claimed that “in January 2020, Vladimir Okhotnikov, Jeanne Doe a/k/a Lola Ferrari, Mikhail Sergeyev and Sergey Maslakov launched Forsage.io, which allowed millions of individual investors to enter into transactions via smart contracts that run on the blockchain. Ethereum, Tron and Binance.” Forsage “has allegedly acted as a pyramid scheme for more than two years, with investors making profits by recruiting others into the scheme.” The Securities and Exchange Commission said Forsage “used assets from new investors to pay previous investors in a typical Ponzi structure.”

The Securities and Exchange Commission (SEC) has filed a complaint in the US District Court for the Northern District of Illinois against the four alleged founders and seven other people, accusing them of violating the registration and anti-fraud provisions of federal securities laws. The complaint asks for permanent injunctions, removals, and civil penalties.

The four alleged founders are Russians, while the other seven defendants are from the United States. Two of the defendants, based in the United States, have already agreed to settle the charges. “Scammers cannot circumvent federal securities laws by focusing their schemes on smart contracts and blockchain,” said Carolyn Welshans, acting head of the Securities and Exchange Commission’s crypto and cyber assets unit.

Textbook pyramid and Ponzi scheme

The SEC complaint described the pyramid scheme as follows:

Forsage is a textbook pyramid and Ponzi scheme. It did not sell or purport to sell any actual or consumer product to real retail customers during the relevant time period and did not have a clear source of revenue other than money received from investors. The primary way for investors to make money from Forsage was to recruit others into the scheme.

To participate, the investor created a crypto-asset portfolio and then purchased “slots” in Forsage smart contracts, which gave the investor the right to earn compensation from others the investor had recruited into the scheme (“auditors”) and compensation from the largest Forsage community of investors in the form of profit sharing for payments known as “indirect”. When the investor bought a slot, a portion of that investment was directed to the people who recruited the investor (“uplines”) and the investor in turn became an upline to whomever the investor recruited. Thus, all payments to previous investors were made using funds received from subsequent investors.

The Forsage website was publicly available to investors in the United States and was unrestricted – that is, it did not require a login or password to access content, including anonymous investor information found in the “back office”, the Forsage Academy, the Forsage Community or the Forsage Service Center clients”.

The website at forsage.io is still available. The Securities and Exchange Commission said it is hosted by Cloudflare “on the Interplanetary File System (IPFS), a peer-to-peer network of cached Internet content designed to preserve information indefinitely.”

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