- Forsage smart contracts on Ethereum, Tron, and BNB Chain were consistent with a Ponzi scheme
- Forsage used up around 25% of Ethereum Mainnet bandwidth at its peak
The US Department of Justice (DOJ) indicted four Russians for running a $340 million Ponzi scheme masquerading as a decentralized finance (DeFi) investment platform, the institution announced in a statement on Wednesday.
Vladimir Okhotnikov, Mikhail Sergeev, Olena Oblamska and Sergey Maslakov marketed Forsage on social networks as a legitimate system, when in fact, it was a Ponzi scheme.
The platform’s smart contracts on Ethereum, Tron, and BNB Chain were “consistent with a Ponzi scheme,” the statement said.
Indictment follows up on SEC charge
In August last year, the US Securities and Exchange Commission charged11 people with fraud in connection with the investment scheme.
The four Russians had launched Forsage in January 2020. Its popularity on the Ethereum Mainnet rose rapidly thereafter, and it soon grew to become one of the most-used decentralized apps (dApps) on this blockchain.
According to data from Dune Analytics, it used up around 25% of Ethereum’s bandwidth at its peak, causing gas fees to skyrocket.
Enter the “crypto crusaders”
The promoters recruited millions of users from across the globe, including a group named the “Crypto Crusaders.” They sent money on different blockchains via smart contracts and received payment when they attracted another investor: the textbook definition of a Ponzi scheme.
Defining a Ponzi scheme
A Ponzi scheme is a fraudulent investment scheme in which returns are paid to earlier investors using the capital of new investors. The promoter promises investors high returns on their investment in a short period of time. These returns are paid out of the contributions of new investors, rather than from profits generated by the investment.
The promoter may use some of the funds to pay early investors as a way to create the illusion of legitimacy and attract more investors.
Ponzi schemes are unsustainable and inevitably collapse when there are not enough new investors to pay earlier investors their promised returns.
