February 27, 2023

Federal grand jury indicts four DeFi founders for allegedly running an $340 million Ponzi and pyramid scheme

The founders of Forsage, an unincorporated and purportedly decentralized finance (“DeFi”) cryptocurrency investment platform, were recently indicted by a federal grand jury in Oregon and charged with conspiracy to commit wire fraud for their alleged involvement in a $340 million global Ponzi and pyramid scheme. According to the indictment, the defendants – Vladimir Okhonikov, Olena Oblamska, Mikhail Sergeev, and Sergey Maslakov – all Russian nationals, advertised the Forsage platform to the public as a legitimate, low-risk, and profitable investment program based on self-executing software algorithms, or smart contracts, which were deployed on the Ethereum (ETH), Binance Smart Chain, and Tron blockchains. The website – which was accessible around the world, including Oregon – was also allegedly hosted by a US-based web-hosting platform and utilized a network of US-based recruits to promote Forsage to prospective US investors.

According to the court documents, computer code analysis performed on the underlying smart contracts revealed that Forsage performed as a textbook Ponzi scheme in that, as soon as a user invested in Forsage and purchased a “slot” in a smart contract, the smart contract automatically used the new investor’s funds to pay earlier investors on the platform. Blockchain analytics also confirmed that more than 80 percent of Forsage investors received fewer ETH than they invested, and more than 50 percent of investors never received a single payout. The defendants are also accused of coding at least one account on the Ethereum blockchain to fraudulently siphon investors’ funds out of the Forsage network and into cryptocurrency accounts under the founders’ control – an act that is directly contrary to Forsage representations touting that “100% of the [Forsage] income goes directly and transparently to the members of the project with zero risk.” In an effort to grow the Ponzi/pyramid scheme, the defendants also allegedly designed the pyramid structure to give more earning potential to investors who purchased more slots and could use the smart contracts to cause funds to be automatically directed toward specific investors as they lured additional investors into the scheme.

In August 2022, the Securities and Exchange Commissions charged a total of 11 individuals, which includes the 4 founders and 7 promoters, with violating federal securities laws for their roles in creating and promoting the Forsage website and operating a Ponzi and pyramid scheme that defrauded millions of retail investors around the world, including investors in the US. The largest promotional group for the scheme, also known as the Crypto Crusaders, allegedly operated in the US from at least five different states. According to the SEC’s complaint, the four founders launched the Forsage.io website in January 2020 and continued to be promote the site for two years despite cease-and-desist actions that were filed in September 2020 by the Securities and Exchange Commission of the Philippines, and in March 2021 by the Montana Commissioner of Securities and Insurance. The defendants allegedly continued to promote the platform while denying the allegations on YouTube and other social media platforms.

The SEC charged all 11 defendants with violating the registration and anti-fraud provisions of federal securities laws. On February 7, 2023, an Illinois federal judge entered a default judgment against two of the founders, Sergey Maslakov and Olena Oblamska (aka Lola Ferrari), permanently enjoining the pair from violating the charged provisions and participating in the promotion and offering crypto asset securities. The two must also pay disgorgement, prejudgment interest and civil penalties that will be determined at a later date. The 7 promoters reached settlements with the SEC, one of which consented to the entry of a partial judgment. The SEC’s cases continue against this promoter and the remaining two founders.

DOJ Press Release | Indictment | SEC Press Release (August 2022) | SEC Complaint