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US Agency Busts Cryptocurrency Ponzi Scheme

Buy Crypto Here Your Capital Is At Risk
Updated 2 Aug 2022

Key points:

  • The SEC Makes Charges In Crypto Pyramid Scheme
  • The Forsage Scheme Asserted It Was A Smart Contract Platform
  • The SEC Has Taken A More Active Role In Crypto Law Enforcement Of Late

The Securities and Exchange Commission (SEC) is bringing charges against 11 people, busting a huge cryptocurrency pyramid scheme, Forsage. The move against the individuals has highlighted the more dynamic position the SEC is taking lately in the application of crypto law.

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The SEC Makes Charges In Crypto Pyramid Scheme

The SEC announced Monday that it had charged 11 persons in a suspected $300mn cryptocurrency Ponzi and pyramid scheme. Amongst the 11 individuals named in the filing, four are the founders of the Forsage platform, (Lola Ferrari, Vladimir Okhotnikov Sergey Maslakov, and Mikhail Sergeev), whilst the other seven were project promoters. The aforementioned founders are believed to be living in Russia, the Republic of Georgia and Indonesia, making them outside of the SEC’s reach.

Carolyn Welshhans is acting chief of the SEC’s Crypto Assets and Cyber Unit and stated, “As the complaint alleges, Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors.”

Also Read: Cryptocurrency, NFTs, or Shares – Which Is the Better Long-Term Investment?

The Forsage Scheme Asserted It Was A Smart Contract Platform

The Forage scheme raised funds encouraging millions of retail investors to transact via smart contracts that operated on the Ethereum, Tron and Binance blockchains. The scheme used promoters to persuade these worldwide investors to encourage others into the programme. Although Forsage promoted itself as a “decentralized networking platform,” the US regulator asserts that the platform is organized so investors profit from recruiting new investors to the project. In turn, the newly-deposited assets from the newly recruited are used to pay out the earlier investors. A classic Ponzi scheme!

The SEC Has Taken A More Active Role In Crypto Law Enforcement Of Late

Of late, the SEC has been far more active in the enforcement of cryptocurrency law. As we have covered in a recent post, SEC To Probe Coinbase On Crypto Listings alongside the Justice Department, the US regulatory agency has probed Coinbase regarding whether they wrongly allowed Americans to trade digital assets that should have been registered as securities on its platform. Furthermore, in a separate event, the SEC also recently charged a former Coinbase employee for breaking insider-trading rules.

Additionally, SEC Chair Gary Gensler last week stated in a video in a Tweet that crypto exchanges should be “regulated like securities exchanges”, adding that he found “no difference” between the two.