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Highlights
- The regulator has recognised decentralised platform Forsage as a fraud and a pyramid scheme
- The press release expressly uses the terms Ponzi, which indicates how the investors were duped
- The action might cause new troubles in the crypto market, which is already subdued this year
What is the risk of getting involved in cryptocurrencies? The Securities and Exchange Commission (SEC), which oversees the securities market in the US, has charged one “decentralised networking platform” Forsage’s founders and promoters for their role in running a Ponzi scheme.
Is that the biggest risk? Now that the platform has come under scrutiny, business continuity is very likely to take a hit, and existing users might lose their money. Before we explore this aspect, let us quickly know why the SEC has called Forsage a “pyramid and Ponzi scheme”.
What is Forsage crypto?
Forsage is a platform, which offered “programs” to its users, seemingly promising high returns. The “basic matrix” program, for example, promised three times the return on funds in “1 cycle”. What Forsage primarily stresses on its official website is “limitless possibilities” of blockchain-based smart contracts.
On the website, the platform claims to have over two million participants, and ironically, nearly 2,500 have joined in the past 24 hours, it indicates. The platform seems to be attracting users by promoting smart contracts on ETH (Ethereum), TRX (TRON), and BUSD.
SEC’s charges against Forsage
The securities regulator in the world’s largest economy has expressly identified Forsage as a “fraudulent” crypto scheme, in which existing investors earned by the way of recruiting new users.
This is exactly what a Ponzi scheme or a pyramid structure is all about, where there is no actual product or service, but revenue is generated and distributed by recruiting new members that bring new deposits into the scheme.
The SEC’s press release mentions a total of 11 individuals who have been charged for running the alleged Forsage fraud. Out of them, four are founders and a few are US-based promoters. The regulator further states that the scheme has been in operations for over two years despite actions against it in the Philippines. The securities regulators in the Southeast Asian country had identified Forsage as a fraud in 2020.
It is also mentioned by the SEC that two defendants have agreed to settle the charges.
Also read: Who is Ishan Wahi and what is crypto insider trading?
Business continuity
It is very likely that Forsage will have to cease its operations in the US. Even if the platform functions in other jurisdictions, SEC’s action would likely act as a major warning that might prevent people from joining it. There is no word yet from the platform on the entire episode.
Data provided by CoinMarketCap.com
Bottom line
The SEC has identified Forsage as a Ponzi scheme, in which new users added revenue that was distributed among the older ones. This might dent the confidence of crypto enthusiasts, especially when the biggest asset Bitcoin is reeling from losses this year.
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