Crypto Pyramid Scheme Lands 11 in Trouble, SEC Alleges $300 Million Were Raised by Fraud

The group of the accused individuals formed a platform called ‘Forsage’, that now faces charges of fraud under the US Securities Act.

By Radhika Parashar | Updated: 2 August 2022 16:06 IST

Crypto Pyramid Scheme Lands 11 in Trouble, SEC Alleges $300 Million Were Raised by Fraud

Photo Credit: Unsplash/ Bermix Studio

The US authorities have tightened the monitoring around decentralised protocols

Highlights

The SEC is getting active in nabbing crypto criminals
Forsage lured in new investors by promising rewards
Crypto scammers are raising activities in US

A total of 11 individuals in the US have been charged with whipping-up a crypto pyramid scheme, defrauding “millions of retailers”, and churning over $300 million (roughly Rs. 2,359 crore). The charges were laid in a United States District Court in Illinois. The Securities and Exchange Commission (SEC) has alleged that these eleven people kept increasing the number of members in their scheme by promising them rewards for recruiting more members. The SEC has categorised this case to have been in a “typical Ponzi structure”.

The group of the accused individuals formed a platform called ‘Forsage' and enabled new investors to set-up a crypto-asset wallet and purchase ‘slots' from Forsage's smart contracts. These slots would give them the right to earn compensation from others whom they recruited into the scheme.

“Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors. Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains,” Carolyn Welshhans, Acting Chief of the SEC's Crypto Assets and Cyber Unit said in a statement.

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The founding team of Forsage has been charged with violating “Unregistered Offers and Sales of Securities” and “Fraud” under the US Securities Act.

The US authorities have tightened the monitoring around decentralised protocols to ensure that the anonymity they offer, is not misused by exploiters.

The activity of crypto scammers has risen in number in the US, owing to the escalating adoption rate of cryptocurrencies.

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Last week, Ryan Felton, a Hollywood producer from Atlanta, has pleaded guilty to have been scamming crypto investors in order to maintain his extravagant lifestyle.

In July, a report by transparency advocate and publisher, the BanklessTimes said that American crypto investors lost $185 million (roughly Rs. 1,500 crore) between January 2021 and March 2022 to romance scams and over $1 billion (roughly Rs. 8,000 crore) in total to other fraudulent activities.

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Further reading: Cryptocurrency, Ponzi Scheme, Crypto Frauds, Crypto Scams

Radhika Parashar

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Radhika Parashar is a senior correspondent for Gadgets 360. She has been reporting on tech and telecom for the last three years now and will be focussing on writing about all things crypto. Besides this, she is a major sitcom nerd and often replies in Chandler Bing and Michael Scott references. For tips or queries you could reach out to her at RadhikaP@ndtv.com. More