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SEC issues charges on 11 people in a $300 million crypto pyramid scheme LeapRate

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The Securities and Exchange Commission announced charging 11 individuals for creating and promoting fraudulent blockchain scheme. According to the regulator, Forsage, a fraudulent crypto pyramid and Ponzi scheme managed to raise over $300 million from retail investors worldwide.

The official press release details that four of the defendants were the founders of Forsage, who were last known to be living in Russia, the Republic of Georgia, and Indonesia. Among the charged indivduals are also three US-based promoters engaged by the founders to endorse Forsage on its website and social media platforms. Several members of the so-called Crypto Crusaders, the largest promotional group for the scheme that operated in the United States from at least five different states, have also been charged.

Background

SEC detailed that Forsage.io was launched n January 2020 by Vladimir Okhotnikov, Jane Doe a/k/a Lola Ferrari, Mikhail Sergeev, and Sergey Maslakov. The website allowed millions of retail investors to make transactions through smart contracts operated on Ethereum, Tron, and Binance blockchains.

However, according to the US watchdog, Forsage operated as a pyramid scheme for more than two years. During this time, investors earned profits by recruiting others into the scheme. In a typical Ponzi structure, the website also used assets from new investors to pay earlier ones.

SEC fraud

Furthermore, SEC alleges that cease-and-desist actions by the Securities and Exchange Commission of the Philippines in September 2020 and by the Montana Commissioner of Securities and Insurance in March 2021 did not stop Forsage from operating and the defendants continued to promote the scheme while denying the claims in several YouTube videos.

Carolyn Welshhans, Acting Chief of the SEC’s Crypto Assets and Cyber Unit, said:

As the complaint alleges, 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.

Among the charged individuals in connection to the fraudulent scheme are also 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, Ill., Alisha R. Shepperd, of Dunedin, Fla., and Sarah L. Theissen, of Hartford, Wis. They have been charged with violating the registration and anti-fraud provisions of the federal securities laws.

The US regulator has stated it seeks injunctive relief, disgorgement, and civil penalties from the defendants.

Settlement

Two of the defendants, Ellis and Theissen, have agreed to settle the charges without admitting or denying SEC’s allegations. They have agreed to be permanently enjoined from future violations and certain other activity.

Additionally, Ellis has agreed to pay disgorgement and civil penalties, and Theissen will be required to pay disgorgement and civil penalties as determined by the court.

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