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SEC Charges Eleven Individuals in $300M Crypto Pyramid Scheme (sec.gov)
201 points by makaimc on Aug 1, 2022 | hide | past | favorite | 40 comments

> “ Despite cease-and-desist actions against Forsage for operating as a fraud 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 scheme while denying the claims in several YouTube videos and by other means.”

Even now, the site Forsage.io is live, and claims that 2,559 people joined the past 24 hours. Who knows if it’s true.

But how does this work: when a site like this is charged with fraud, can it operate until there is a verdict, defrauding more unsuspecting victims? Needless to say, visitors to the site will have know knowledge of this lawsuit.

If it's actually on chain as a smart contract, it can't be shut down unless the code was written to allow it.

You could make hosting and distribution of the code a prohibited act. Wanna still host that Blockchain if it can get you arrested? Just cus it lives as code doesn't mean someone or some group isn't responsible for distributing it.

> You could make hosting and distribution of the code a prohibited act. Wanna still host that Blockchain if it can get you arrested?

And there goes the blockchain.

I'm shocked it hasn't happened already given the fact that many popular blockchains allegedly host illegal images in the transaction metadata. That's all the FBI needs.

The only reason I can imagine is that blockchain and crypto are still useful to people in certain positions. Exfiltrating money from foreign regimes, etc.

If you ban something that can’t be banned and, surprise, people keep using the unbannable thing, it makes you look very very weak as a governance org.

That perception of weakness is significantly more costly than the existence of the target, especially when you can just control human minds via saying things like “look at how much energy it uses and it does nothing at all!” — and most people will believe it!

>Exfiltrating money from foreign regimes, etc.

Crypto isn't useful for that. The thing that's actually useful for that is the illegal, unregulated exchange that's making the trade. It doesn't matter what currency they trade it for, it could be anything else besides crypto tokens. Crypto actually just adds extra unnecessary steps because the end goal is almost always to get it back out in another local currency. Unless you plan to get the money and then only spend it on NFTs.


For anyone who isn't familiar with that story (maybe there are other cases, I'm not sure)

Seems more like (a very dark form of) trolling

On another note, restricting code like this is a terrible precedent. I believe code is part of free speech, but in many respects, even more sacred — like mathematics.

Now do the same, but with DNS records.

Being on chain doesn‘t have an impact if it still needs centralised architecture like DnS and a webserver with a static ip. It‘s no problem taking them down if it would be legal to do so. But I don‘t know why its not legal to simply cut them off.

Or if the majority of people running the blockchains (nodes or miners) write code to never accept transactions involving that contract or roll back the chain to before that contract was deployed or any number of things.

You think blockchain is immune to DDoS?

Good luck taking down Bitcoin.

I doubt the Filipino SEC or the Montana whatever office has the ability. The US SEC doesn’t prosecute but they can give information to Federal Prosecutors. My guess is they don’t have the legal authority or capability to do those things.

Interesting that I had not even heard of this. My previous client was connected to the types of people who were constantly relaying garbage like this, and unfortunately he would pass most of them to me for review. Almost always I would have to explain that they were almost certainly scams or utterly foolish nonsense ventures. (Usually they were intentionally malfeasant, not naive foolishness.)

The one that blew my mind was Nasgo, a nonsense fake "mining" system which was clearly trying to confuse people with Nasdaq. A few years ago they put on massive performances and hosted hundreds of guests. It was obvious to anyone who was not a greedy non-technical fool that it was a scam, but greed really does something to people. You just could not tell people the problems of this thing, because their ears were closed. So looking now, I see in 2019 the coin was theoretically worth 98 cents. Now it is worth about 1/10th of a cent. It was an outright scam of grand scale, with fireworks and conventions and such, and the people who created it surely made off with millions.

I would guess that there are at least 10 or more similar stories for each year or two. There was the most famous Onecoin and so many that followed.

Speaking of mining scams... Envion [1] was a good one too. Amazingly, it still even has updates! [2]

[1] https://www.yahoo.com/news/envion-ico-scandal-both-sides-151...

[2] https://www.envion-konkurs.ch/en/

74 votes and a single comment, I think that is record high ratio.

The Securities and Exchange Commission today charged 11 individuals for their roles in creating and promoting Forsage, a fraudulent crypto pyramid and Ponzi scheme that raised more than $300 million from millions of retail investors worldwide, including in the United States. Those charged include the four founders of Forsage, who were last known to be living in Russia, the Republic of Georgia, and Indonesia, as well as three U.S.-based promoters engaged by the founders to endorse Forsage on its website and social media platforms, and 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.

I never heard of it. For some reason despite following crypto closely I have never heard to 90% of these frauds despite the frauds being so big. Maybe the fraud is some weird front for money laundering, so they don't try to promote it much.

Also , no end to the YouTube scam livestreams. For some reason, YouTube Saylor and Musk giveaway scams stay under radar forever (no arrests, no indictments) despite many arrests and indictments for other frauds, like ransomware, mlm, insider trading (coinbase & opensea). Goes to show how some scams and criminals are better than others.


I’d imagine they don’t target people who closet follow crypto but instead people who only think of it as “some high tech money thing making people rich”.

> YouTube Saylor and Musk giveaway scams

I think I saw one of these once. It involved an atrocious (but still somehow impressive) deepfake of Musk. Is this common?

They are getting very creative too. There is a common bot scam nowadays where it will ask for help and share private keys of a crypto wallet with money inside it.

The catch is to transfer those tokens from the crypto wallet, you have to fund it with native token to pay the gas fee. When you do, the gas fees is automatically sniped by the bot and stolen.

Another interesting one I've come across is where scammers plant obvious bot tweets and then other bots call them out to upsell security services by a random account which then setup a similar trap.

It's amusing to watch. I might fall for some of them if I wasn't aware of them. I can't imagine an average person not getting fished.

> When you do, the gas fees is automatically sniped by the bot and stolen.

Wouldn't stealing the gas fee cost more gas to initiate a theft transaction? So they'd be net-zero?

Or do they use a SUICIDE op, etc. to get a partial gas refund?

I think the idea is, someone would fund it with more than just enough to pay for gas, making the snipe profitable.

I consider myself a "normal person" in this matter, just one who happens to hold the belief that crypto is always, everywhere, and fundamentally a scam -- even though the technology is cool and theoretically could be used for honest purposes.

This makes it easy to avoid getting hosed :)

No idea about the deepfake thing, but a few years ago I noticed a whole bunch of old channels that I had subscribed to were taken over and replaced with Musk-related giveaway scams. Never watched any of the videos or livestreams - the title, thumbnail and (renamed) channel name were enough to make it obviously scams.

Youtube is incredibly slow to respond to these kinds of things.

They're very common; I've seen a dozen or more. The ones I've seen don't look like deepfakes; they're random Elon Musk or Cathie Wood videos with a URL for a scam site superimposed.

I think there is some truth about Tate's comment on some adolescent/young adult male from middle-class families (i'd add: without cultural capital, and remove the color denominator as in my country, social class seems to have way more incidence).

Nobody really care about them, or empathize with them, to the extent than before a debate i had with someone with opposing views on a lot of things, i myself was thinking about coinbros, guys in the hustler University or scammed into giving money to fake Elon musk something like: they have money to spent, they will loose some and get help from their parent at some time.

But in fact, they aren't really middle class. Some of them are and will get support, some think they are and will get burned hard (or have their parent and close families suffer). They are targeted by the same scams the 70s-90s housewives were: they have holes in their education, a strong external belief system, are an easy demographic to target and just got access to money and don't know what to do to get more. So instead of madoff-like scams, MLMs with beauty products and other "housewivy" stuff, and revolving credits "get money now to make money later" its now crypto and Get Rich quick schemes sold for 50 dollars a month. Basically the same scams, just a different audience.

But while it is easy to get empathy for housewives who just got the right to have their own bank account, drive alone (my grandmother had fun anecdata about this, my grandfather was 20 year ahead of time) and go to a movie unsupervised, it is a bit harder to have some empathy for the new target of those. Because they are somehow like me, only with a bit more money at birth, in a more centralized place, and the fundamental attribution error is hard to get rid of as it stroke my ego, when it was mostly luck and amazing parenting (and having great parents is luck too when i think about it).

I mean, it's some progress, I guess.

How long until the US Gov goes after all the folks who keep doing pump & dump/"rug pull" b.s with new coins? There seems to be a never-ending trail of those.

The SEC is running behind by about two years. They're still working through the ICO scams of 2019. Here's the current list of SEC "cyber" enforcement actions.[1]

The SEC is mostly complaint-driven. When someone complains their money was stolen, they can investigate. So enforcement actions come during the collapse phase of scams. The "cyber" enforcement staff was recently doubled, so enforcement actions should pick up soon.

The SEC pretty much shut down the ICO boom by sending out letters to coin issuers, "Please explain why your FooCoin isn't an unregistered securities offering." A few issuers filed an S-1 and registered as a security, while others just gave all the money back. We don't see many pure ICOs any more. We do see desperate attempts to make something a "utility token", used mostly for some other purpose than speculation.

[1] https://www.sec.gov/spotlight/cybersecurity-enforcement-acti...

They really should start with the celebrities and influencers e.g. Jake Paul who have been profiting by promoting these rug pull schemes to their audiences.

At least it would help set a public example for others.

Or the NFL for that matter. Lotta innocent people lost money thinking they been advertised legitimate companies.

> I mean, it's some progress, I guess.

Ever wondered why the majority of ICOs in the US have been stamped out since 2017/2018?

> How long until the US Gov goes after all the folks who keep doing pump & dump/"rug pull" b.s with new coins? There seems to be a never-ending trail of those.

Until regulations are much clearer and those people who create such coins have to be registered and fully doxxed and exposed first perhaps.

But either way, it is never going to fully go away, so some of them will slip through the net.

I'll get some heat, but i reached one of my school friend during covid and asked him what he was doing. He had a gig where he was coding snippets of solidity code to create "almost" solid coins, and publish those on the ethereum blockchain. And was paid a lot. Like FAANG level of money, in Europe (UK, it was a bit before Brexit).

Now, i don't understand this particular tech very well, so i might make a mistake, but from what i understood, he was actually creating shitcoins "templates" which could seem seemingly rug pull immune (like wait time before withdrawal? Like i said, i don't know the space very well, it doesn't really interest me), but add a smallish backdoor. His company (it was 2 dev one marketing) then sold those coin template to diverse people and sold installation, formation and support of like six month.

Would his company be targeted by the US gov? it seems like he was enabling scammers while not taking any personnal money from anyone. Wasn't this very sketchy? By the way, i think his company at first wanted to be on the "Wish" market (cheap dropshipped stuff from China) and then sold dropshipping websites template, so i guess this was actually a moral upgrade?

> it seems like he was enabling scammers while not taking any personnal money from anyone.

"X didn't scam anyone, X just sold a template that allowed others to scam".

If there's no reasonable other legitimate purpose, then it's still profiting from scamming, albeit at one layer of abstraction.

> Would his company be targeted by the US gov?

If it turns out that he was enabling scammers to scam, then yeah - I would hope so.

Prosecution takes time to build a solid case.

The absence of news of prosecution does not necessarily mean an absence of prosecution. There are lots of reasons why you wouldn’t announce an ongoing investigation.

It's not super clear but it seems like that's essentially part of what they're being charged for and was behind the first C&D?

I do think there's a lot more underway and coming.

I’m not educated on crypto but wouldn’t it be easier to go after the fiat->coin people or do people really just mine / buy coin with cash?

What crime are the fiat->coin exchanges committing? (Excluding the insider trading of one individual at coinbase)

To add some nuance to the sibling reply, the SEC has extensively laid out its legal argument for why many (not all) of the coins traded on crypto exchanges are securities under US law, including specific examples. See the recent insider trading complaint [1] and this analysis [2]. Dealing in unregistered securities is a crime [3], so if the analysis is correct then the exchanges are breaking US law.

[1] https://www.sec.gov/litigation/complaints/2022/comp-pr2022-1... (¶ 95 - ¶ 206)

[2] https://www.sec.gov/corpfin/framework-investment-contract-an...

[3] https://www.law.cornell.edu/uscode/text/15/78l

If you ask me, they should all be shut down for selling unregistered securities, because all crypto tokens fit closest to that definition more than anything else. It's impossible for these tokens to actually function as a currency, both technically and legally. They're not a new class of assets, the idea of tradable tokens is not new either.

Exactly my point. They are selling in fiat currency a lie. That 100% is accessible for litigation. The whole crypto->crypto thing could be seen as not a crime because who can tell it’s worth other than the darn fiat converter!

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