There have been many crackdowns on the crypto space by regulators. Some of the recent ones involved Kraken, Coinbase, and Paxos. These cases were linked to compliance, staking, and stablecoin minting.
However, a new case in decentralized finance (DeFi) has made the headlines today. The founders of Forsage, a popular DeFi platform, came under the radar of a federal grand jury for running a Ponzi scheme worth over $340 million.
Forsage Founders Accused Of Ponzi Scheme
According to reports, the Department of Justice (DOJ) charged the founders of Forsage, Olena Oblamska, Vladimir Okhotnikov, Sergey Maslakov, and Mikhail Sergeev, for carrying out multiple counts of fraud, conspiracy, and money laundering.
A federal grand jury in the District of Oregon, which has been investigating Forsage for several months, revealed this information in a recent post.
The allegation is that the platform was a “pyramid scheme” relying on recruiting new members to pay returns to early investors. The report also noted that the founders of Forsage used false and misleading statements to lure investors into the scheme.
Further details revealed that the defendants falsely presented the Forsage platform as a legal environment where investors can gain huge profits with low risk. The founders also used several social media platforms and its website to promote the scheme promising investors of smooth operations.
Blockchain analytics claims more than 80% of Forsage investors received less Ether than they had invested. Aside from this, over 50% of the investors got nothing in return after their investments.
Defendants’ Strategy And The DeFi Space
Per the court document, the defendants developed a secret code in one of the platform’s accounts, xGold smart contract, on the Ethereum blockchain. This code fraudulently collects investors’ funds from the Forsage network and transfers them into digital currency accounts under the founders’ control.
This move was contrary to the initial agreement the founders signed with the investors, which states that 100% of the Forsage funds go to the project’s members without risks.
However, the Forsage founders have yet to respond to the charges, and it is unclear if they have legal representation. As per the report, they could face a maximum prison time of 20 years if convicted. The case is expected to go to trial in the coming months, and the outcome could significantly affect the DeFi industry.
The news has sent shockwaves through the DeFi community, which has grown rapidly in recent years. Decentralized finance platforms like Forsage allow users to trade cryptocurrencies without intermediaries like banks. However, the lack of regulation in the DeFi space has raised concerns about fraud and investor protection.
Notably, the Assistant Director of the FBI’s Criminal Investigative Division, Luis Quesada, stated that as the digital currency ecosystem advances, criminals remain relentless in devising new ways to carry out their schemes. But he added that the FBI would remain committed to working with international and domestic law enforcement partners to maintain a peaceful crypto ecosystem.
Featured image from Pixabay, Chart from TradingView.com