SEC Charges 11 Over Alleged $300 Million Crypto Fraud

The Securities and Exchange Commission on Monday brought charges against 11 individuals for allegedly bilking investors out of more than $300 million in a crypto pyramid and Ponzi scheme.

The four founders of Forsage were among those charged and were last known to be living outside the U.S., according to the SEC complaint.

Photo Illustration by Barron’s Advisor; Dreamstime(2)

Regulators allege the scheme started in at least January 2020. They say the creators of the website allegedly raised funds fraudulently from  millions of retail investors in the U.S. and around the world. Investors entered into transactions via smart contracts that operated on the Ethereum, Tron, and Binance blockchains, regulators allege.

The move comes as cryptocurrency has become more popular with everyday investors, increasing the potential for fraud schemes. In May, for instance, the U.S. Department of Justice charged the CEO of Mining Capital Coin for an alleged $62 million global investment fraud scheme.  

“Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors,” said Carolyn Welshhans, acting chief of the SEC’s Crypto Assets and Cyber Unit, in a press release. “Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains.”

The SEC’s complaint was filed in U.S. District Court for the Northern District of Illinois, Eastern Division. The four founders of Forsage were among those charged and were last known to be living in Russia, the Republic of Georgia, and Indonesia, according to the complaint. The SEC also charged three U.S.-based promoters who the complaint says were engaged by the founders to endorse Forsage on Forsage-hosted platforms including its official YouTube channel. Additionally, the SEC charged several people that regulators say led the largest Forsage promotional group in the U.S. Regulators allege they engaged in the unregistered offer and sale of securities in Forsage and promoted the scheme, operating from at least five different states.

Representatives for those charged, whose contact information was provided by the SEC, declined to comment or did not immediately return emails requesting comment.

Two of the U.S.-based defendants agreed to settle the charges without admitting or denying the allegations, the SEC said. Both agreed to be permanently enjoined from future violations of the charged provisions. One has agreed to pay disgorgement and civil penalties, while the other will be required to do so as determined by the court. 

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