US SEC complaint says 11 associated with ‘smart contract’ firm Forsage, including founders, ran fraudulent pyramid and Ponzi scheme for more than two years
The US financial regulator has charged 11 individuals connected with “smart contract” enterprise Forsage, saying the group has been operating as a fraudulent pyramid and Ponzi scheme since its launch in January 2020.
The Securities and Exchange Commission (SEC) said Forsage raised more than $300 million (£244m) from investors around the world, including in the United States.
Via the website forsage.io the group claimed to allow retail investors to enter into transactions via smart contracts operated on the Ethereum, Tron and Binance blockchains.
But it has allegedly operated as a pyramid scheme since its launch, with investors earning profits by recruiting others into the scheme, the SEC said.
The group also allegedly used assets from new investors to pay earlier investors in a typical Ponzi structure, the regulator said.
Cease-and-desist actions were issued to Forsage by the Securities and Exchange Commission of the Philippines in September 2020 and by the Montana Commissioner of Securities and Insurancein March 2021, but Forsage continued to promote the scheme while denying the regulators’ claims in several YouTube videos and by other means, according to the SEC.
“Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressivey marketed to investors,” said SEC Crypto Assets and Cyber Unit acting chief Carolyn Welshhans.
“Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains.”
The charges include Forsage’s four founders, who were last known to be living in Russia, the Republic of Georgia and Indonesia, as well as three US-based promoters engaged to endorse Forsage on its website and social media platforms and several members of the Crypto Crusaders, the largest promotional group for the scheme, which operated from at least five US states.
Forsage was founded in 2020 by Vladimir Okhotnikov, Jane Doe a.k.a. Lola Ferrari, Mikhail Sergeev and Sergey Maslakov.
Okhotnikov was last known to be living in Tbilisi, Georgia, with Ferrari in Bali, Indonesia and Sergeev and Maslakov in Moscow, Russia, according to the SEC’s complaint.
Two of the 11 defendants, Samuel Ellis of Louisville, Kentucky, and Sarah Theissen of Hartford, Wisconsin, have agreed to settle the charges and to be permanently enjoined from future violations of the charged provisions and certain other activity, the SEC said.
Ellis agreed to pay disgorgement and civil penalties, while Theissen will be required to pay disgorgement and civil penalties as determined by the court. Both settlements are subject to court approval.
The SEC’s complaint, filed in the US District Court in the Northern District of Illinois, also charges Cheri Beth Bowen of Pelahatchie, Mississippi, Ronald Deering of Coeur d’ Alene, Idaho, Mark Hamlin of Henrico, Virginia, Carlos Martinez of Chicago, Illinois and Alisha Shepperd, of Dunedin, Florida, with involvement in promoting Forsage.
‘Abundance and prosperity’
The complaint charges the defendants with violating the registration and anti-fraud provisions of federal securities laws and seeks injunctive relief, disgorgement and civil penalties.
Forsage continued to promote its business on various social media outlets up to the time of the charges on Monday.
A post on the group’s official Telegram channel late last week read, “Forsage membership opens for you the world of abundance and prosperity… Exploring and pushing countless boundaries, what was impossible earlier, we are able to achieve now.”
The SEC in May nearly doubled the staff of its crypto enforcement group with the addition of 20 officers, amidst a sharp rise in crypto-related fraud activity.
Last month the FBI added the former leader of cryptocurrency firm OneCoin to its list of the ten most wanted fugitives, after Oxford-educated Ruja Ignatova vanished in 2017 amidst a law-enforcement probe into her company.