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11 people charged in $300 million crypto fraud – 'a textbook pyramid and Ponzi scheme'

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Al Drago/Bloomberg via Getty Images

Yesterday, the Securities and Exchange Commission (SEC) charged 11 people for their roles in an alleged blockchain Ponzi scheme that raised $300 million from investors. The alleged scheme, called Forsage, spanned multiple countries, including the United States and Russia.

The four creators of Forsage were among those charged in the U.S. District Court, but their whereabouts are currently unknown. In addition, three U.S.-based promoters and several members of the promotional group "Crypto Crusaders" were also charged for promoting the fraudulent website on social media.

Forsage's website states that it is a "decentralized networking platform based on smart contracts that connects people from all over the world and opens the limitless possibilities of the new economic financial system."

The website allowed retail investors to perform transactions using Ethereum, Tron, and Binance blockchains. For the last two years, investors could earn a profit by recruiting more investors. The funds from the new investors were used to pay the earlier ones – a textbook pyramid scheme.

The SEC filed cease-and-desist actions against Forsage multiple times as far back as September 2020. Allegedly, the company ignored the actions and continued to promote the website's services. Forsage created YouTube videos disputing the claims.

The SEC's complaint stated, "Forsage is a textbook pyramid and Ponzi scheme. It 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."

Acting Chief of the SEC's Crypto Assets and Cyber Unit Carolyn Welshhans noted, "As the complaint alleges, Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors." She continued, "Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains."

The complaint filed by the SEC in the Northern District of Illinois requests "injunctive relief, disgorgement, and civil penalties."

Two of the defendants in the case have agreed to settle without admitting or denying the allegations. They have been ordered to pay disgorgement and civil penalties.

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