The US Securities and Exchange Commission (SEC) announced it has charged 11 people for their role in an alleged Ponzi scheme called Forsage, which defrauded retail investors for more than $300 million.
The SEC said the Forsage website was launched in January 2020, and allowed retail investors to trade in cryptocurrencies such as Ethereum, Tron and Binance, via smart contracts. According to the regulator, Forsage investors earned profits by attracting others into the scheme and used assets from new investors to pay earlier participants, in a classic Ponzi scheme structure.
Four alleged founders of Forsage were charged, who were last known to be living in Russia, the Republic of Georgia, and Indonesia. Three U.S.-based promoters, who were part of a large promotional group called the Crypto Crusaders, were also charged.
Forsage ignored several cease-and-desist actions, according to the SEC. The Exchange Commission of the Philippines issued an order in September 2020 and the Montana Commissioner of Securities and Insurance sent a similar action in March 2021. The defendants allegedly continued to promote the scheme in YouTube videos and by other means.
“As the complaint alleges, Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors,” Carolyn Welshhans, Acting Chief of the SEC’s Crypto Assets and Cyber Unit, said. “Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains.”
The SEC said two of the defendants had agreed to settle the charges, and one of them agreed to pay a penalty, all without admitting or denying the allegations.
A recent study from the Federal Trade Commission showed that Americans lost over $1 billion in crypto-related scams between January 2021 and March 31, 2022. The research showed over 46,000 people had fallen prey to a crypto scam, and the median amount made by the fraudsters was around $2,600 per person.