US regulators are seizing their moment during this ongoing crypto bear market to crack down on bad actors in the space, as many investors are already downgrading on the asset class.
The U.S. Securities and Exchange Commission charged 11 people today in connection with Forsage, a crypto venture that has raised more than $300 million from “millions of retail investors globally,” it said. announced the agency today. Those charged include the project’s four founders – Vladimir Okhotnikov, Jane Doe aka Lola Ferrari, Mikhail Sergeev and Sergey Maslakov – who were last seen in Russia, Georgia and Indonesia. Several members of the “Crypto Crusaders,” a group that promoted the program in at least five different U.S. states, have also been charged, according to the announcement.
Forsage was launched in January 2020 as a website for retail investors to transact on Ethereum, Tron, and Binance blockchains, according to the SEC complaint. In June 2020, Forsage was the most popular decentralized application on Ethereum and consumed so much on-chain bandwidth that it drove up gas fees. At the height of its popularity in July 2020, over $20 million worth of ETH was sent to the platform in a single day, according to data from Dune Analytics.
According to the SEC, the scheme operated as a pyramid scheme for more than two years and used the assets of new investors to pay off old ones, typical of a Ponzi scheme structure. Operating a pyramid scheme, a fundamentally unsustainable business model in which participants recruit others to buy with the promise of quick returns, is illegal in the United States.
“Fraudsters cannot circumvent federal securities laws by focusing their schemes on smart contracts and blockchains,” wrote Carolyn Welshhans, acting head of the SEC’s Crypto Assets and Cyber Unit, a division from the SEC which changed its name to include crypto in its title and went on a hiring spree in May of this year.
This is not the first time that Forsage has been in the crosshairs of regulators. The Philippines Securities and Exchange Commission sent the company a cease and desist order in 2020 for acting as a fraud and in 2021 the Montana Commissioner of Securities and Insurance did the same. Despite these warnings, the defendants continued to promote the scheme and denied operating a pyramid scheme on various social media platforms, according to the SEC.
In addition to the founders, Cheri Beth Bowen, Ronald R. Deering, Samuel D. Ellis, Mark F. Hamlin, Carlos L. Martinez, Alisha R. Shepperd, and Sarah L. Theissen have also been charged with violating federal copyright laws. securities relating to Forsage. , according to the SEC complaint. Ellis and Theissen, according to the agency, have agreed to settle the charges.
The accusations come at a time of heightened regulatory scrutiny over the digital asset space, particularly from the SEC itself. Coinbase has been locked in a battle with the agency over its sale of cryptocurrencies listed on its platform which it claims are commodities and not securities.
Meanwhile, US Senators Kirsten Gillibrand and Cynthia Lummis are seeking to build consensus in Congress for their bill that would classify most cryptocurrencies as commodities, placing the industry largely under the jurisdiction of US Commodity. Futures Trading Commission rather than leaving it open to the stricter SEC. .