SEC charges 11 people in alleged $300 million crypto Ponzi scheme

The Securities and Exchange Commission on Monday filed a civil complaint charging 11 people for their roles in creating and promoting an allegedly fraudulent crypto-focused pyramid scheme that raised more than $300 million from investors.

The scheme, called Forsage, claimed to be a decentralized smart contract platform, and it allowed millions of retail investors to enter into transactions via smart contracts that operated on the ethereum, tron and binance blockchains. But under the hood, the SEC alleges that for more than two years, the setup functioned like a standard pyramid scheme, in which investors earned profits by recruiting others into the operation. 

In the SEC’s formal complaint, Wall Street’s top watchdog calls Forsage a “textbook pyramid and Ponzi scheme,” in which Forsage aggressively promoted its smart contracts through online promotions and new investment platforms, while all the while not selling “any actual, consumable product.” The complaint goes on to say that “the primary way for investors to make money from Forsage was to recruit others into the scheme.”

In a statement, the SEC added that Forsage operated a typical Ponzi structure, wherein it allegedly used assets from new investors to pay earlier ones.

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

“Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains.”

Forsage, through its support platform, declined to offer a method for contacting the company and did not offer comment.

Four of the eleven individuals charged by the SEC are founders of Forsage. Their current whereabouts are unknown, but they were last known to be living in Russia, the Republic of Georgia and Indonesia.

The SEC has also charged three U.S.-based promoters who endorsed Forsage on their social media platforms. They were not named in the commission’s release.

Forsage was launched in January 2020, and regulators around the world had tried a couple of different times to shut it down since then. Cease-and-desist actions were brought against Forsage first in September of 2020 by the Securities and Exchange Commission of the Philippines, and later, in March 2021, by the Montana commissioner of securities and insurance. Despite this, the defendants allegedly continued to promote the scheme while denying the claims in several YouTube videos and by other means.

Two of the defendants, both of whom did not admit or deny the allegations, agreed to settle the charges, subject to court approval.