August 1 brought another crypto legal case, with 11 people charged by the U.S. Securities and Exchange Commission (SEC) in an alleged $300 million Ponzi scheme that raised money from millions of worldwide retail investors. A company operating as Forsage said it was a decentralized smart contract platform. Retail investors used Forsage to complete transactions using smart contracts on blockchains including Ethereum, Tron, and Binance.
The SEC alleged in its complaint that Forsage operated as a standard pyramid scheme for more than two years. In a typical pyramid scheme, investors receive gains only when they recruit additional investors—each phase of investors gets payouts from the investments of the successive phase, rather than from actual profits earned or from increased value of stock.
The SEC filing argues that Forsage promoted its smart contracts very aggressively through online advertising as well as new investment platforms. But in the words of the complaint, there was never “any actual, consumable product.”
Four of the 11 charged individuals are company founders, and their whereabouts are unknown. Last known addresses include Indonesia, the Republic of Georgia, and Russia. Three additional charged parties are U.S.-based individuals who used their social media accounts to endorse Forsage.
Since its January 2020 launch, at least two other regulating bodies have tried to shut down the company. The Securities and Exchange Commission of the Philippines brought a cease-and-desist order in September 2020; the Montana Commissioner of Securities and Insurance did the same in March 2021. The defendants responded by continuing to promote Forsage smart-contract transactions and posting YouTube videos that denied claims of fraud.
While neither admitting nor denying the SEC allegations, two defendants agreed to settle the charges. Those agreements are subject to court approval.