The U.S. Securities and Exchange Commission (SEC) is seizing the opportunity to crack down on bad actors in the crypto space during this ongoing bear market. As many investors are already souring on the asset class, regulators are taking a closer look at schemes that have raised hundreds of millions of dollars from retail investors worldwide.
Forsage: A Pyramid Scheme or Ponzi Scheme?
One such scheme is Forsage, which was launched in January 2020 as a website that allowed retail investors to transact on the Ethereum, Tron, and Binance blockchains. According to the SEC complaint, Forsage has operated as a pyramid scheme for over two years, using assets from new investors to pay off old ones. This is a classic characteristic of a Ponzi scheme, which is fundamentally unsustainable and illegal in the U.S.
Key Players Charged by the SEC
The SEC charged 11 individuals in connection with Forsage, including its four founders: Vladimir Okhotnikov, Jane Doe aka Lola Ferrari, Mikhail Sergeev, and Sergey Maslakov. The individuals were last spotted in Russia, Georgia, and Indonesia. Several members of the "Crypto Crusaders," a group that promoted the scheme in at least five different U.S. states, were also charged.
How Forsage Operated
Forsage’s popularity peaked in July 2020, with over $20 million worth of ETH sent to the platform in a single day, according to Dune Analytics data. At its peak, Forsage was the most popular decentralized application on Ethereum and consumed so much bandwidth that it caused gas fees to spike.
SEC’s Warning: Don’t Think You Can Outsmart Us
The SEC is sending a clear message: "Fraudsters cannot circumvent federal securities laws by focusing their schemes on smart contracts and blockchains." The agency is making it clear that they will not tolerate pyramid or Ponzi schemes, regardless of the technology used to operate them.
Regulatory Scrutiny: A New Era for Crypto
The charges against Forsage’s founders and promoters come at a time of heightened regulatory scrutiny over the digital asset space. The SEC has been cracking down on crypto projects that have raised funds from investors without registering with the agency or complying with securities laws.
Coinbase vs. SEC: A Battle Over Classification
One notable example is Coinbase, which has been locked in a battle with the SEC over its sale of cryptocurrencies listed on its platform. The agency insists that these assets are securities and therefore must be registered, while Coinbase argues that they are not.
What Does This Mean for Crypto Investors?
The Forsage case serves as a reminder to investors to do their due diligence before investing in any crypto project. With the SEC cracking down on schemes like Forsage, it’s essential to understand the risks involved and to never invest more than you can afford to lose.
Conclusion
The U.S. regulators’ crackdown on crypto schemes is a welcome development for those who believe that the space needs stricter regulations. As the market continues to evolve, it’s essential for investors to be vigilant and for regulators to remain proactive in policing the industry.
Key Takeaways
- The SEC has charged 11 individuals in connection with Forsage, including its four founders.
- Forsage operated as a pyramid scheme or Ponzi scheme, using assets from new investors to pay off old ones.
- The SEC is making it clear that they will not tolerate pyramid or Ponzi schemes, regardless of the technology used to operate them.
- Regulatory scrutiny over the digital asset space continues to increase.
Related Stories
- Venture New York powerhouse VC Insight Partners nabs another $12.5B after $8B in exits
- Failed fintech startup Bench racked up over $65 million in debt, documents reveal