US SEC charges 11 in $300m crypto pyramid scheme

Founders behind fraud last lived in Russia, Georgia and Indonesia

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  The crypto market, which includes currencies such as Bitcoin, pictured, has lost $2 trillion of its value in six months. Unsplash

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  The price of Ethereum, the second largest cryptocurrency by market size, has fallen by 70 per cent this year. Investors and analysts are watching to see if it will dip below $1,000. Unsplash

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  Dogecoin, supported by Elon Musk, is about 90 per cent down from May last year, yet it is outperforming Bitcoin and Ethereum in the current crash. Unsplash

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  The government of El Salvador has invested $105 million in Bitcoin. President Nayib Bukele's embrace of the cryptocurrency as legal tender is being questioned as the market crashes. Getty

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  Changpeng Zhao, founder of crypto exchange giant Binance, has compared the current market turmoil to the dotcom bubble of the early 2000s. Still, the company is aggressively pursuing licensing in international jurisdictions and introducing new products. Getty

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  Tether is the biggest issuer of stablecoins, a type of cryptocurrency pegged to a traditionally stable asset like the US dollar. Most stablecoins are meant to maintain a constant price of $1 and are backed by real reserve funds, making it easy to convert crypto investments into cash. But Tether's financial statements show that may not be true, leaving the issuer and its investors vulnerable. Unsplash

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  The recent crypto crash can in part be attributed to the collapse of TerraUSD, a stablecoin pegged to the US dollar through algorithms and linked to a "sister" cryptocurrency named Luna. When the price of Luna plummeted, TerraUSD also fell, creating a “death spiral” to practically zero for both coins. Unsplash

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  On June 12 crypto lender Celsius Network said it had paused customer withdrawals, saying it needed “to stabilise liquidity and operations”. Investors are still waiting, with no signs that the current meltdown will let up. Getty

The US Securities and Exchange Commission (SEC) said on Monday it had charged 11 people for their roles in creating and promoting a fraudulent crypto pyramid and Ponzi scheme that raised more than $300 million from retail investors worldwide, including in the US.

Those charged include the four founders of the scheme called Forsage who were last known to be living in Russia, the Republic of Georgia and Indonesia, the SEC said in a statement.

The charged individuals could not immediately be reached for comment.

The SEC complaint states that the scheme's website, launched in January 2020, allowed millions of retail investors to enter into transactions via smart contracts.

The site allegedly allowed investors to earn profits by recruiting others, operating as a pyramid scheme for more than two years, the SEC said.

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  Changpeng Zhao, founder and chief executive of Binance, is the world’s richest crypto billionaire with a net worth of $65 billion. Bloomberg

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  Sam Bankman-Fried, founder and chief executive of FTX cryptocurrency exchange, ranked as the second-wealthiest crypto billionaire with a personal fortune of $24bn. Bloomberg

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  Brian Armstrong, co-founder of Coinbase, is the third-wealthiest crypto billionaire with a net worth of $6.6bn. Bloomberg

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  Gary Wang, co-founder of FTX cryptocurrency exchange, ranked fourth with a net worth of $5.9bn. FTX

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  Chris Larsen, executive chairman of Ripple’s board of directors and former chief executive and co-founder of Ripple, rounded out the list of top five wealthiest crypto billionaires with a fortune of $4.3bn. Ripple

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  Song Chi-hyung, founder of Upbit, the largest cryptocurrency exchange in South Korea, has a net worth of $3.7bn. Courtesy: Dunamu

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  Tyler Winklevoss, chief executive and co-founder of Gemini Trust, left, and Cameron Winklevoss, president and co-founder of Gemini Trust, have a net worth of $4bn each. Bloomberg

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  Barry Silbert, founder and chief executive of Digital Currency Group, has a net worth of $3.2bn. Bloomberg

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  Jed McCaleb, founder and chief architect of the Stellar Development Foundation and co-founder of Ripple, has a net worth of $2.5bn. Courtesy: Stellar Development Foundation

Forsage also reportedly used assets from new investors to pay earlier investors in a typical Ponzi structure, the SEC complaint added.

“Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors,” said Carolyn Welshhans, acting chief of the SEC's Crypto Assets and Cyber unit.

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

Without admitting or denying the allegations, two of the accused agreed to settle the charges and one of them agreed to pay penalties, the SEC said.