Forsage founders indicted over $340M DeFi ‘Ponzi scheme’

February 23, 2023 Coin Telegraph

Forsage founders indicted over 0M DeFi ‘Ponzi scheme’

According to the Department of Justice, Forsage employed smart contracts which were coded in ways consistent with a Ponzi scheme.

The founders behind the alleged $340 million “global Ponzi” scheme Forsage have been indicted by a federal grand jury in the District of Oregon.

The four Russian founders — Vladimir Okhotnikov, Olena Oblamska, Mikhail Sergeev, and Sergey Maslakov — have been formally accused of having key roles in the scheme which raised approximately $340 million from victim-investors, according to a Feb. 22 Department of Justice (DOJ) statement.

“Today’s indictment is the result of a rigorous investigation that spent months piecing together the systematic theft of hundreds of millions of dollars,” said U.S. Attorney Natalie Wight for the District of Oregon, adding:

“Bringing charges against foreign actors who used new technology to commit fraud in an emerging financial market is a complicated endeavor only possible with the full and complete coordination of multiple law enforcement agencies.”

Forsage had touted itself as a low-risk decentralized finance (DeFi) platform built on the Ethereum (ETH) blockchain which purportedly allowed users to generate long-term passive income, Blockchain analytics however reportedly revealed that 80% of Forsage “investors” have received less back than they had put in.

According to the DOJ, analysis of the smart contracts revealed that funds raised as new investors purchased “slots” in Forsage’s smart contracts were diverted to older investors, as is consistent with a "Ponzi scheme."

Forsage still has an active Twitter account, which posted a thread on Feb. 22 claiming that community members who participate in “The Ambassador Program” would be able to earn monthly rewards by completing certain tasks.

2/3

Pre-registration will open soon, so don't hesitate to be among the first!

The Ambassador Program is an opportunity not only to earn rewards, but also to attract new members to the team, get to know the products better and broaden your horizons in the world of Web3.
— FORSAGE (@forsageofficial) February 22, 2023

On Aug. 1 2022, the Securities and Exchange Commission (SEC) had charged the four founders and seven promoters with fraud and selling unregistered securities, with acting chief of the SEC’s Crypto Assets and Cyber Unit, Carolyn Welshhans, noting at the time:

“Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains.”

The Philippines Securities and Exchange Commission had also flagged Forsage as a likely Ponzi back in 2020, but a month later the platform was still the second-most popular DApp on the Ethereum blockchain.

While a charge refers to the instance when a prosecutor brings criminal charges and accuses an individual or group of an offense, an indictment is filed by a grand jury if prosecutors are able to convince a majority of them that a formal accusation is warranted following an investigation.

Grand juries are common in federal and serious state felony offenses.

Bankman-Fried on the hook in Texas, called to appear at Feb. hearing

November 30, 2022 Coin Telegraph

Coin Telegraph

The Texas Securities Board has asked the judge to consider leveling a cease-and-desist order, administrative fines, and forced refunds against SBF and FTX US.

Former FTX CEO Sam Bankman-Fried has been called to a Feb. 2 hearing by the Texan securities regulator as part of an investigation into whether he and FTX US have violated Texas securities laws.

In a Notice of Hearing signed off by Texas State Securities Board’s (SSB’s) director of enforcement Joe Rotunda and served to Bankman Fried on Nov. 29, the regulator alleges that FTX US offered unregistered securities to Texans through its “EARN” accounts.

The investigation was first announced on Oct. 14, before the dramatic collapse and bankruptcy of FTX’s global operations. The regulator announced at the time it was investigating FTX Trading and FTX US and its principals including Sam Bankman-Fried for offering unregistered securities through its yield-bearing products.

On Nov. 18, Rotunda used Twitter to appeal to the public to reach out to him if they were a previous client of FTX and based in Texas.

If you’re a client if @FTX_Official and you live in Texas, please reach out to me. We want to hear your story. My Texas State Securities Board email address is jrotunda@ssb.texas.gov.
— Joe Rotunda (@joe_rotunda) November 18, 2022

In the latest notice, the SSB alleged that Sam Bankman-Fried violated a section of the Securities Act during his role as the then-CEO of FTX.

“Respondent [Sam Bankman-Fried] violated Section 4003.001 of the Securities Act by offering and selling securities in Texas that were not registered or permitted for sale in Texas,” said Rotunda, adding it also didn’t register as a dealer or agent in Texas.

The regulator said it hoped that the hearing will lead to a Cease and Desist order to prevent FTX from “engaging in fraud in connection with the offer or sale of securities in Texas.”

It was also “praying” for the judge to order Bankman-Fried to return money to Texan customers that had invested in its “unregistered EARN accounts.”

The regulator also wants consideration of an “administrative fine” to be issued to Bankman-Fried should he have gained any economic benefit from the securities law violations. This amount wouldn’t exceed $20,000 per violation but could go to $250,000 for every “illegal or fraudulent act” that was perpetrated against Texans over the age of 65.

Rotunda said the hearing will commence at 9am local time on Feb. 2, 2023, and Bankman-Fried can attend the hearing using Zoom.

Bankman-Fried is understood to currently be in the Bahamas.

In a recently published interview between crypto blogger Tiffany Fong and Bankman-Fried, the former FTX CEO expressed remorse over his handling of FTX and the bankruptcy filing.

“You don’t get into the situation we got in if you, like, make all the right decisions,” he said in the recently released Nov. 16 interview.

New Hampshire Court Sides With SEC in Lawsuit Against LBRY, Project’s Team Says Loss Sets a ‘Dangerous Precedent’

November 7, 2022 Bitcoin.com

Ripple’s allies expand: Coinbase files amicus brief in fight against SEC

November 1, 2022 Coin Telegraph

amicus brief

Crypto exchange Coinbase has filed documentation asking permission to help Ripple Labs in its ongoing legal battle with the SEC.

United States-based crypto exchange Coinbase has become the latest organization to stand behind Ripple Labs in its legal battle against the Securities and Exchange Commission (SEC), which could wrap up as soon as the first half of 2023.

Paul Grewal, Coinbase’s chief legal officer in a series of tweets on Oct. 31 said the exchange had asked the presiding judge for permission to file an amicus brief, saying the case was a “textbook” definition of “just how critical fair notice is.”

Earlier today, @coinbase asked Judge Torres for permission to file an amicus brief in the SEC case over XRP. Our point in pretty simple: this is a textbook case of just how critical fair notice is any reasonable notice of due process under law. 1/3 pic.twitter.com/qhSSGrNgJK
— paulgrewal.eth (@iampaulgrewal) October 31, 2022

An amicus brief, known as a “friend of the court,” is a legal document containing advice or information relating to a court case from an organization or individual that is not directly involved in the case.

Grewal added that a fundamental protection under the U.S. Constitution is that authorities can’t “condemn conduct as a violation of law without providing fair notice that the conduct is illegal.”

“By suing sellers of XRP tokens after making public statements signaling that those transactions were lawful, the SEC has lost sight of this bedrock principle,” he added.

If approved, Coinbase will join the ranks of the non-profit organization Investor Choice Advocates Network and crypto mobile app SpendTheBits which were granted permission to file amicus briefs in October.

The filing also comes on the same day cryptocurrency lawyer John Deaton filed a motion seeking permission to submit an amicus brief on behalf of the XRP “decentralized community.”

It also follows days after crypto advocacy group the Blockchain Association also announced its support for Ripple on Oct. 28 by announcing it had filed its ow amicus brief, noting that SEC chairman Gary Gensler’s views on securities laws could have “devastating effects” on the space.

Ripple Labs has been caught up in a nearly two-year-long legal saga with the SEC that regards the sale of its Ripple (XRP) tokens as unregistered securities sales.

Ripple CEO Brad Garlinghouse on an Oct. 11 panel at DC Fintech Week said he thinks the case could be wrapped up by the half of 2023 but admitted it would be hard to predict an exact end date.

Unregistered Securities