Many investors are souring on the asset class that the U.S. regulators are taking their time to crack down on bad actors.
The SEC charged 11 people today in connection with Forsage, a project that raised over $300 million from millions of retail investors around the world. The four founding members of the project were last seen in Russia, Georgia and Indonesia. The group that promoted the scheme in at least five different U.S. states was also charged.
According to the SEC complaint, Forsage was launched in January 2020 as a website that allowed retail investors to transact on the ether, tron, and bndrian ledgers. In June 2020 Forsage was the most popular application on the platform and it caused gas fees to go up. In one day in July 2020, over $20 million of ETH was sent to the platform.
According to the SEC, the project has operated as a pyramid scheme for more than two years and used assets from new investors to pay off older investors. A pyramid scheme, a fundamentally unsustainable business model in which participants recruit others to buy in with the promise of quick returns, is not legal in the US.
Carolyn Welshhans wrote that fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts.
Forsage has been under scrutiny before. The Philippine Securities and Exchange Commission ordered the company to stop operating in 2020 and the Montana Commissioner of Securities and Insurance ordered the company to stop operating in 2021. The defendants denied that they were operating a pyramid scheme on social media.
Ronald R. Deering and Mark F. Hamlin were among those charged with violating federal securities laws. Ellis and Theissen have agreed to a settlement.
At a time when the SEC is scrutinizing the digital asset space, the charges come. The agency has objected to the sale of Cryptocurrencies listed on the platform that it insists are not securities.
Senators Gillibrand and Lummis want to bring the industry under the jurisdiction of the U.S. Commodity Futures Trading Commission.
If it walks like a dog and barks like a dog, perhaps it’s actually a digital asset security
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