- The Forsage scammers will face a criminal trial after a grand jury indicted them over the $340 million swindle
- Forsage is the first DeFi scam to form the basis of a prosecution in the U.S.
- The four scammers face up to 20 years in prison for wire fraud
The founders of the Forsage Ponzi scheme have been indicted by a federal grand jury in the District of Oregon over the $340 million scam, the first in the U.S. involving a DeFi project. The defendants have been accused of coding and deploying smart contracts that systematized their combined Ponzi-pyramid scheme on the Ethereum, Binance Smart Chain, and Tron blockchains, falsely promoting Forsage to the public as a legitimate, low-risk, and lucrative investment opportunity. Most investors didn’t get back what they put into Forsage, while half got nothing back at all.
Forsage Used COVID-19 to Lure Investors
Forsage presented itself as an Ethereum dApp, but in reality it was a multi level marketing scheme, using phrases like “cash gifting scheme” and “matrix marketing program” to mask its true nature. Forsage used the COVID-19 pandemic to lure people into its scheme by promising them a way to make money during tough economic times, describing itself as a “100% decentralized international crowdfunding” platform with “zero risk factors”.
However, when authorities analyzed the computer code of Forsage’s smart contracts, it was discovered that the code operated in a manner consistent with that of a Ponzi scheme; when an investor purchased a “slot” in a Forsage smart contract, the code automatically redirected their funds to other Forsage investors. This meant that earlier investors received payouts using funds from later investors, creating the well-known cycle of dependence and perpetuating the scheme.
Prison Sentences Await
The four founders were charged by the Securities and Exchange Commission (SEC) in August last year with defrauding investors out of $300 million (at the time), with the latest indictments offering new details of the impact on victims; more than 80% of those who invested in Forsage did not receive the full amount of ETH that they had invested, while over 50% of investors did not receive any payouts at all.
Court documents further reveal that the defendants intentionally coded the “xGold” smart contract on the Ethereum blockchain in a fraudulent manner. This coding caused investors’ funds to be transferred out of the Forsage investment network and into accounts controlled by the founders, directly contradicting their promise that “100% of the income goes directly and transparently to the members of the project with zero risk.”
Vladimir Okhotnikov, Olena Oblamska, Mikhail Sergeev, and Sergey Maslakov, all Russian nationals, are each charged with conspiracy to commit wire fraud. If convicted, they face a maximum penalty of 20 years in prison.