The Securities and Exchange Commission has indicted 11 people in an alleged $300mn crypto pyramid scheme, explaining how authorities are increasing their enforcement in the digital asset markets.
The Wall Street watchdog said the scheme, called Forces, raised money by using promoters to persuade millions of investors around the world to enroll in the program.
“Forces is a fraudulent pyramid scheme that has been mass-launched and aggressively marketed to investors,” said Carolyn Welshhans, Acting Head of the SEC’s Crypto Assets and Cyber Unit. “Fraudsters cannot circumvent federal securities laws by focusing their plans on smart contracts and blockchains.”
The SEC accused the operators of Forsage of raising $300mn in the US and worldwide through at least January 2020 through an unregistered securities offering. The civil charges come just weeks after the regulator accused a former employee of crypto exchange Coinbase of insider trading related to a coin listing. The former Coinbase employee, through his lawyer, stated that he is “innocent of all wrongdoing”.
The cases underscore how the SEC is applying existing securities regulations to police the digital asset market, which its chairman, Gary Gensler, has called the “wild west.”
The SEC said in a complaint filed in federal court in Illinois that Forces did not sell or intend to sell genuine, consumable products to retail customers during the relevant time period and that there was no apparent source of revenue other than money received from investors. . ,
Forsage used smart contracts – computer programs that allow crypto trading to be conducted without a central intermediary – to operate the plan, the SEC said. According to the regulator, contracts traded on Ethereum, Tron and Binance blockchains—digital ledgers that are widely used in the crypto industry.
Investors in the project would earn compensation from the other people they recruited and the people who were involved in the project. Investors also earned profit sharing fees from the wider community.
“All payments to earlier investors were made using funds received from subsequent investors,” the SEC said.
A Forsage representative accessed via the group’s website, who described himself as a volunteer for the decentralized organization, said the SEC’s allegations are “nonsense of cryptocurrency newcomers and not true”.
The SEC’s allegations include a man known by four of Forsage’s founders – Vladimir Okhotnikov, Mikel Sergeev, Sergei Maslyakov and alias Lola Ferrari. The last known locations of Okhotnikov and Ferrari were Georgia and the Republic of Indonesia, respectively. Both Sergeev and Maslyakov are known to last in Moscow. Individuals could not be reached for comment.
The SEC also accused three US-based promoters of the scheme, as well as members of the scheme’s propaganda group called Crypto Crusaders, which operated in at least five US states.