The Forsage founders and promoters are being sued by the SEC for allegedly supporting a $300 million “textbook pyramid and Ponzi scheme.”
11 people have been prosecuted by the Securities and Exchange Commission (SEC) for allegedly helping to establish the “fraudulent crypto pyramid scheme” platform Forsage.
The SEC accused the platform’s creators and promoters of using a “fraudulent crypto pyramid and Ponzi scheme” to generate more than $300 million from “millions of retail investors worldwide,” according to accusations filed in an Illinois federal court on August 1.
According to the SEC complaint, Forsage was designed in a way that allowed investors to profit financially from bringing in new investors in a “classic Ponzi structure” that included the US and Russia.
A Ponzi scheme, as defined by the SEC, is an investment fraud that rewards current investors with money raised from new investors. These schemes frequently use the promise of investing money in possibilities with large returns and low risk to entice new participants.
The SEC claimed the following in the court document:
“It [the Forsage platform] did not sell or purport to sell any actual, consumable product to bona fide retail customers during the relevant time period and had no apparent source of revenue other than funds received from investors. The primary way for investors to make money from Forsage was to recruit others into the scheme.”
In order to purchase “slots” from Forsage’s smart contracts, prospective investors must first create a crypto-asset wallet, according to the SEC, which is how the alleged Ponzi scheme Forsage operates.
Those positions would entitle them to pay from “downlines,” or the people they brought into the program, as well as from the rest of the Forsage investment base, in the form of profit sharing, or “spillovers.”
Forsage was referred to as a “fraudulent pyramid scheme established on a vast scale and aggressively pushed to investors” by Carolyn Welshhans, Acting Chief of the SEC’s Crypto Assets and Cyber Unit.
Decentralized technologies, she continued, cannot be used as a cover for unlawful activity.
“Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains.”
The SEC’s complaint listed seven promoters in addition to the four founders, who are Vladimir Okhotnikov, Jane Doe aka Lola Ferrari, Mikhail Sergeev, and Sergey Maslakov. Three of the promoters were members of a promotional organization based in the United States dubbed the “Crypto Crusaders.”
Infractions of “Unregistered Offers and Sales of Securities” under Sections 5 A and C and “Fraud” under Sections 17(a) (1 & 3) of the US Securities Act have been brought against all 11 people. Additionally, the defendants are accused of “Fraud” in violation of US Exchange Act Sections 10B and 10C.
According to Welshhans, these efforts allowed the Ponzi structure to take advantage of the enormous scale that retail investors’ purchases of the model over the previous two years gave it.
The Philippines SEC issued cease-and-desist orders to Forsage in September 2020. The Montana Commissioner of Securities and Insurance issued cease-and-desist orders to the platform in March 2021 as well.
According to Forsage’s YouTube channel, their platform was only recently introduced ten days ago. Twitter for the website also looks to be operational.