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SEC

How The SEC Uncovered A $300 Million Crypto Pyramid Scheme

Alizeh Ilyas
by Alizeh Ilyas
4 months ago
·
Posted in Crypto scam
Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure

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.

Related Reading: How Cardano’s Charles Hoskinson Helps the Crypto Community

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.

Tradingview
Bitcoin is currently trading at $23,103 on the daily chart | Source: BTCUSDT From Tradingview

 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.

Related Reading: Experts Still Think Bitcoin Mining Is Profitable, What Does That Mean?

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. The Northern District has recently seen a surge of financial-related cases, from crypto schemes like Forsage to regulatory actions involving industries such as Illinois sports betting. 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

 

Editorial Process for bitcoinist is centered on delivering thoroughly researched, accurate, and unbiased content. We uphold strict sourcing standards, and each page undergoes diligent review by our team of top technology experts and seasoned editors. This process ensures the integrity, relevance, and value of our content for our readers.
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Alizeh Ilyas

Alizeh Ilyas

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With over 3 years of crypto writing experience, Alizeh Ilyas have a deep understanding of cryptocurrencies, blockchain, Fintech, web3, crypto market analysis, predictions, and more. Her passion for innovation shines through her work. Keeping a keen eye on the future of digital finance, she bridges gaps between technology and readers.

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