The SEC has charged seven U.S. residents with being part of a $300 million crypto scheme that ensnared millions of investors from around the world, the SEC announced today.
Eleven people were charged, including the four founders of the crypto investment company Forsage. who were last known to be living in Russia, the Republic of Georgia and Indonesia. The seven U.S. residents, who acted as promoters for the firm, were charged with fraud. Forsage was a fraudulent crypto pyramid and Ponzi scheme that lured in millions of retail investors worldwide, the SEC said.
The U.S. promoters who were charged “engaged in the unregistered offer and sale of securities in Forsage. By working with the founders to promote Forsage in the United States, the promoters engaged in a scheme to defraud investors,” the complaint said, adding that some of the defendants labeled themselves the "Crypto Crusaders."
Forsage had no apparent source of revenue other than funds received from investors and the primary way for investors to make money was to recruit others into the scheme, the SEC said. To participate, an investor created a crypto-asset wallet and then purchased “slots” in Forsage’s smart contracts, which gave the investor the right to earn compensation from others whom the investor recruited into the scheme. Compensation from the larger Forsage community of investors in the form of profit sharing of payments was known as “spillovers,” the SEC complaint said.
Forsage was created in January 2020 and operated using a website that allowed millions of retail investors to enter into transactions by way of “smart” contracts that operated on the Ethereum, Tron and Binance blockchains, according to the SEC complaint. In reality, according to the SEC complaint, Forsage has operated as a pyramid scheme for more than two years. Investors earned profits by recruiting others into the scheme and Forsage used assets from new investors to pay earlier investors in a textbook Ponzi structure, the SEC said.
The SEC complaint identified the founders as Vladimir Okhotnikov, "Jane Doe aka Lola Ferrari", Mikhail Sergeev and Sergey Maslakov.
Despite cease-and-desist actions against Forsage for operating as a fraud in September 2020 by the Securities and Exchange Commission of the Philippines and in March 2021 by the Montana Commissioner of Securities and Insurance, the defendants allegedly continued to promote the scheme while denying the claims in several YouTube videos and by other means, the complaint said.
In addition to charging the four founders, the complaint, filed in U.S. District Court in the Northern District of Illinois, charges Cheri Beth Bowen of Pelahatchie, Miss.; Ronald R. Deering of Coeur d’ Alene, Idaho; Samuel D. Ellis of Louisville, Ky.; Mark F. Hamlin of Henrico, Va.; Carlos L. Martinez of Chicago; Alisha R. Shepperd of Dunedin, Fla.; and Sarah L. Theissen of Hartford, Wis., with violating the registration and antifraud provisions of the federal securities laws. The SEC’s complaint seeks injunctive relief, disgorgement, and civil penalties.
"Forsage was a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors," Carolyn Welshhans, acting chief of the SEC’s Crypto Assets and Cyber Unit, said in a statement. "Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains."
Without admitting or denying the allegations, two of the defendants, Ellis and Theissen, agreed to settle the charges and to be permanently enjoined from future violations of the charged provisions. Additionally, Ellis agreed to pay disgorgement and civil penalties, and Theissen will be required to pay disgorgement and civil penalties as determined by the court.