Sec Sues Ponzi Scheme Forsage

[TL;DR]

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-On August 1st, 2022, the US Securities and Exchange Commission released a press statement concerning its charges against 11 members of Forsage.io for their role in creating and promoting activities that allegedly bear resemblance to a cryptocurrency pyramid scheme.

-Before now, actions to stop their operations had been brought by financial securities institutions in the countries of the Philippines and Montana.

- Forsage was able to carry out its activities for this long due to the anonymous status of smart contracts and blockchain bestowed on users.

-The accused conned millions of retail investors globally to deposit more than $300 million on the Forsage platform.

-These assets were instead used to compensate early investors and individuals higher up in the pyramid with profits.

Sec Sues Ponzi Scheme Forsage

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Forsage began operations in January 2020 as a smart contract technology that enticed millions of retail investors to transact via smart contracts, which operated on Ethereum, Tron and Binance blockchains. Ever since, it has raised more than $300 million through investors worldwide, including the United States of America. To get started on the platform, new " investors'' are required to open new "crypto-asset wallets'' and buy slots from the platform's smart contracts. Money is earned from the platform through referrals, known as downlines, whereby returns from new investors were used to pay off old investors in a typical Pyramid Ponzi scheme style. As it is now, Forsage has been dubbed the "world's largest blockchain Ponzi scheme."

According to the charges laid against Forsage before the District Court in Illinois by SEC, if Forsage has not purported to sell any products on its platform, it solely relies on money from new investors to repay old investors. It is a Ponzi scheme.

Cease and Desist actions were brought against Forsage in 2020 and 2021

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Before the charges, a cease and desist action was brought against Forsage in September 2020 and March 2021 by the SEC of the Philippines and the Montana Commissioner of Securities and Insurance, respectively. Yet, the platform continued to accept new investors. As it is now, the Twitter pages are still active. The YouTube Channel agog with marketing and promotional videos has over 47,000 subscribers.

Among those charged are Vladimir Okhotnikov, Jane Doe (aka Lola Ferrari), Mikhail Sergeev, and Sergey Maslakov, founders of the platform who were last confirmed to be living in Russia, the Republic of Georgia, and Indonesia. Others are three US-based campaigners who endorse Forsage on their websites and social media platforms, as well as several members of the ostensible group 'Crypto Crusaders' operating in five states of the US.

Why Has Forsage Succeeded So Far with Smart Contract scheme?

The benefit of smart contracts and blockchain technology for pyramid schemes lies in its decentralized nature thereby guaranteeing anonymity. To shut down any other Ponzi scheme is much easier, authorities can trace transactions to a source like a bank, but blockchain technologies could be more difficult.

smart contracts were first built on Ethereum and hence became home to many pyramid schemes. These Ponzi schemes' smart contract issues automatic code generation, a feature that presupposes authenticity to unsuspecting users. It also gives the impression of transparency as the code can be audited by the public. Yet, according to a study conducted in 2019, 184 pyramid contracts were found in the Ethereum blockchain.

Forsage was designed to benefit a select few.

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Although Forsage's founders bragged about the transparency of their platform, it took renowned blockchain analyst Sarah Meiklejohn and a team of research weeks to decrypt the code behind their smart contract, which means no use of the platform could have possibly audited it.
In addition, it was discovered that their $240 million Ethereum x3/x4 contract was set up in such a way that only a few can benefit from it, with the founders at the top of the pyramid. For example, other users were required to buy slots to receive payment. After getting 3 referees, a slot was blocked and the user (referer) had to pay to reopen it before receiving payments. Also, by 2022, Okhotnikov had diverted over 1000 ETH to a wallet with an ID other than Forsage, decrying the claim that all investments were paid out to investors.

In conclusion

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With the charges laid against Forsage by the US SEC, investors might be dissuaded from using the platform. It is worthy of note that MetaForce, Okhotnikov's newest smart contract hosted on the Polygon Network, has experienced a decline in deposits since the announcement about the charges. To prevent the vulnerable from being preyed upon by similar Ponzi schemes, SEC and other financial regulatory institutions should utilise as many media and social media outlets as possible to expose their activities.



Author: Gate.io Observer: M. Olatunji
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