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Forsage Platform Founders Indicted in $340 Million Ponzi Scheme

Crypto Users Lose Over $1.4 Billion YTD to Crypto Crimes
Crypto Users Lose Over $1.4 Billion YTD to Crypto Crimes

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The founders of a DeFi crypto investment platform, Forsage, have been indicted by the federal grand jury in the District of Oregon for running a $340 million Ponzi scheme. According to an announcement by the United States Department, the indicted include Vladimir Okhotnikov, Mikhail Sergeev, Sergey Maslakov, and Olena Oblamska, citizens of the Russian Federation.

The DOJ noted that the four allegedly touted Forsage as a decentralized matrix project based on network marketing and smart contracts. The project conducted self-executing contracts on the blockchain. Notably, the defendants promoted Forsage to the public through social media platforms as a legitimate business. However, that was not true. The Russians operated Forsage as a Ponzi and pyramid investment scheme in reality. That is, it took approximately $340 million from victim investors globally.

A Ponzi scheme is a form of fraud that pays earlier investors with funds collected from new investors.

Notably, Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division asserted:

The department is committed to holding accountable fraudsters who cheat investors, including in the emerging DeFi space. The indictments indicate the department’s ability to use all the investigation tools, including blockchain analysis, to reveal frauds involving crypto and digital assets.

Forsage-coded smart contracts

Forsage relied on smart contracts on Ethereum (ETH), Binance Smart Chain, and Tron blockchains that were consistent with the Ponzi scheme. When investors invested in Forsage by purchasing a “slot” in a Forsage smart contract, the smart contract automatically diverted the funds to their Forsage investors. “Today’s indictment results from a rigorous investigation that spent months piecing together the systematic theft of hundreds of millions of dollars,” said Natalie Wight.

Further, the U.S Attorney for the District of Oregon, Natalie, noted:

Bringing charges against foreign actors who used new technology to commit fraud in an emerging financial market is complicated. Only possible with the full and possible coordination of multiple law enforcement agencies.

The blockchain analytics revealed that over 80% of investors received less cryptocurrency than they put in. Further over 50% received nothing at all.

Nonetheless, the Homeland Security Investigations (HSI) special agent, Ivan Arvelo, asserted that the four used modern technology and opaque language to swindle the investor’s hard-earned money. Ivan further noted that” the technology may change, but the scam remains the same with the collaboration amongst our partners. We can see through the phony promises and bring the schemes to light.”

Notably, the defendants allegedly coded at least one of Forsage’s accounts, known as the “xGold” smart contract on the Ethereum blockchain, in a way that fraudulently siphoned investors’ funds out. However, the company’s representations to the investors claimed that 100% of Forsage’s income goes directly to the project members with zero risk.

The four founders of the platform are each charged with conspiracy to commit wire fraud. If convicted, the defendants face a maximum penalty of 20 years locked up in prison.

Forsage Ambassador Program

On February 22, Forsage posted a thread via Twitter alleging that the community members who participate in “The Ambassador Program” could earn monthly rewards by completing specific tasks. The program is set to be open on March 1, 2023.

However, in August 2022, the Securities and Exchange Commission charged the four founders and seven promoters with fraud and selling unregistered securities. The charges in the U.S. District Court in Illinois claimed that the founders and promoters of Forsage used a fraudulent crypto pyramid and Ponzi scheme to raise over $300 million from retail investors globally. According to the SEC filing, Forsage was modeled in a way that investors would be financially rewarded by recruiting new investors to the platform in a typical Ponzi structure, which spanned various countries, including Russia and the United States.

Notably, the acting chief of the SEC’s Crypto Asset and Cyber Unit, Carolyn Welshhans, at the time noted that:

Fraudsters ought to circumvent the federal securities laws by engaging their schemes on smart contracts and blockchains.

Forsage fights with agencies

In 2020, Forsage was flagged by the Philippines Securities and Exchange Commission as likely Ponzi. However, the platform was the second most popular Ethereum DApp on rankings a month later. In March 2021, Forsage received a cease and desist order from the Montana Commissioner of Securities and Insurance.

However, an indictment is filed by a grand jury if prosecutors can convince most of them that a formal accusation is warranted following an investigation. On the other hand, charges are instances when prosecutors bring criminal charges and accuse an individual or group of an offense.

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