Founders of popular Crypto Ponzi scheme, Forsage charged for $300m fraud

The US Securities and Exchange Commission (SEC) has indicted 11 individuals for their roles in the global crypto Ponzi and Pyramid Scheme, Forsage. The crypto scheme was popular in Nigeria during the pandemic year.

According to the release by the SEC yesterday, of the 11 individuals charged, four were the founders of the crypto pyramid scheme. Their names are Vladimir Okhotnikov, Lola Ferrari, Mikhail Sergeev and Sergey Maslakov.

Additionally, members of an American group called “The Crypto Crusaders” who promoted the scheme, as well as three other US-based promoters, were also indicted. The other seven culprits are Cheri Beth Bowen, Ronald R. Deering, Samuel D. Ellis, Mark F. Hamlin, Carlos L. Martinez, Alisha R. Shepperd and Sarah L. Theissen.

Okhotnikov, Ferrari, Sergeev, and Maslakov are believed to be living in Russia, Indonesia, and the Republic of Georgia, which places them outside the U.S’ reach. But, t Samuel D. Ellis and Sarah L. Theissen have agreed to settle the charges without formally “admitting or denying the allegations,” the SEC press release says.

According to Carolyn Welshhans, the acting chief of the SEC’s Crypto Assets and Cyber Unit, which oversaw the probe, Forsage is purely a fraudulent pyramid scheme which cannot escape law accountability just because it was built on smart contracts and blockchains.

A little about Forsage

The Forsage pyramid scheme was set up in 2020 by four founders: Vladimir Okhotnikov from Georgia, Jane Doe, aka Lola Ferrari from Indonesia, Mikhail Sergeev and Sergey Maslakov (both hailed from Russia). It was quite popular as a means for investors to get returns from crypto transactions and “affiliate marketing” during the Covid-19 pandemic.

The platform allows investors to transact in tokens on several networks. These include Ethereum, BSC and Tron. Users were rewarded with referral bonuses for bringing others to register under them and returns were paid to older investors from the deposits of recruits.

According to DApp analytics firm, Dune Analytics, Forsage quickly grew to be one of the most popular decentralized apps on the Ethereum blockchain, with a quarter of the network’s bandwidth and gas costs spiking as a result.

However, SEC claims that the smart contracts on the three blockchains were all counterfeit. It says this setup functioned like a regular pyramid scheme for more than two years beneath the surface.

Although the popularity of Forsage waned towards the end of 2020 due to member exhaustion (new members were not willing to join because it was obvious you wouldn’t earn without referring) the program continued in other places and regulators in numerous countries attempted to shut it down in the closing months of its existence.

For instance, the Securities and Exchange Commission in the Philippines issued a cease-and-desist order against Forsage in September 2020. And, the Montana commissioner of securities and insurance sought to close its operations on the allegations that it is operating as a fraud scheme in March 2021.

But, the platform has been able to survive in spite of these. And, it gained tractions as well. According to the SEC, Forsage allegedly obtained more than $300 million from retail investors worldwide, mostly from the United States. 

What you should know 

Like a burgeoning financial system, amidst growing acceptance and adoption, the crypto space is battling a legion of scams and pyramid schemes.  According to an Atlas VPN report in early July, investors have collectively lost almost $2 billion to crypto scams since 2021.

However, the SEC has not relented in its battle against scams within the crypto space. Earlier in March, the agency charged two siblings, John and JonAtina (Tina) Barksdale, for defrauding thousands of investors out of $124M+ through a rug pull scheme involving a crypto token dubbed “Ormeus Coin.”

In yesterday’s announcement, the acting chief of the SEC’s Crypto Assets and Cyber Unit, Gary Gensler said that criminals could not avoid securities laws simply because the scheme was built using smart contracts and blockchain technology. 

Gary also said that crypto exchanges should be regulated just like securities exchanges, stating that he found “no difference” between the two. In order news, the SEC also charged three individuals, including a former Coinbase product manager, with insider trading. It also accused Coinbase of listing securities on its platform. 

The Forsage founders’ indictment is just the latest in SEC efforts to clamp down on fraud schemes in the crypto space. They are applaudable and necessary, considering the rate at which scams in the crypto space are increasing as crypto adoption surges.