US's SEC declares $300 million crypto scam as a pyramid scheme
- Forsage was founded in February 2020 by promoters who stayed in Georgia, Indonesia, and Russia
- It operated in five U.S. states and continued operations even after cease-and-desist orders
- The SEC aims to recover the company's income with interest
The Securities and Exchange Commission (SEC) in the U.S. has charged 11 people for promoting a cryptocurrency-based scam that robbed people of $300 million, the regulator said in a press release.
The world of cryptocurrency has already witnessed some massive highs and extreme lows. From recording all-time highs in terms of U.S. dollar valuations to being targeted in one of the biggest heists, the world of cryptocurrency has had a pretty eventful past year.
Billionaires like Warren Buffett may have called them worthless, while others called crypto-investments a scam. Earlier this year, a Forbes report even called them a 'pyramid scheme', but it would be hard to believe that those promoting cryptocurrencies were actually pushing people into one.
Unfortunately, that's exactly what has happened with Forsage.
What is Forsage?
If you haven't heard of Forsage, you should consider yourself lucky. The company is just over two years old and was set up with the premise of allowing people to carry out transactions using smart contracts on blockchain networks like Ethereum, Tron, and Binance.
A smart contract is a feature of blockchain technology that allows the automation of transactions when certain pre-set conditions are met. These are features that are considered a given in crypto transactions.
According to the Securities Exchange Commission (SEC) press release, the company was founded in February 2020 by Vladimir Okhotnikov, Jane Doe, Mikhail Sergeev, and Sergey Maslakov, whose last known residences are in countries like Georgia, Indonesia, and Russia.
The company's operations were spread out in at least five states, including people based in the U.S. whose jobs were to promote the company on social media and endorse its website to people.
How is Forsage a Pyramid scheme?
Forsage did not really have a product to sell but was focused on getting its customers to create crypto wallets on the platform and then bought "slots" on the smart contracts. These slots were meant to help them earn from each person they recruited to the platform, in a typical pyramid scheme, Gizmodo reported. "
Making matters worse, the company also used assets from new investors to pay customers who had joined the platform earlier, which is also a telltale sign of a Ponzi scheme.
In September 2020, the SEC office of Philliphinnes filed a cease and desist order against the company, while the Montana Commissioner of Securities and Insurance filed one in March 2021. However, the promoters of the company continued to promote the scheme while also denying the claims of such orders on social media, the press release added.
The complaint filed in the District Court in Northern Illinois also names seven U.S. residents who were dubbed "Crypto Crusaders" who are now facing civil penalties. Two of the accused have agreed to settle their charges while agreeing to relinquish their gains from these transactions. The SEC is seeking to recover all of the company's income along with interest in its complaint.