Forsage founders indicted over $340 million DeFi ponzi scam

The US Department Of Justice has charged Forsage, a purportedly decentralized finance (DeFi) cryptocurrency investment platform, and its four founders for their roles in a global Ponzi and pyramid scheme that raised approximately $340 million from victim-investors.

Vladimir Okhotnikov, aka Lado; Olena Oblamska, aka Lola Ferrari; Mikhail Sergeev, aka Mike Mooney, aka Gleb, aka Gleb Million; and Sergey Maslakov, all Russian nationals, were indicted by the DoJ as the US authorities tighten the grip over fraud and crime within the crypto ecosystem.

Okhotnikov, Oblamska, Sergeev, and Maslakov are each charged with conspiracy to commit wire fraud. If convicted, the defendants face a maximum penalty of 20 years in prison.

All investor victims of the Forsage scheme are encouraged to identify themselves as potential victims here, where they can obtain more information on their rights, including the ability to submit a victim impact statement.

The four Russian nationals allegedly touted Forsage as a decentralized matrix project based on network marketing and “smart contracts,” which are self-executing contracts on the blockchain.

According to the complaint, the defendants aggressively promoted Forsage to the public through social media as a legitimate and lucrative business opportunity, but in reality, the defendants operated Forsage as a Ponzi and pyramid investment scheme that took in approximately $340 million from victim-investors around the world.

Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division, said: “Together with our partners, the department is committed to holding accountable fraudsters who cheat investors, including in the emerging DeFi space. Today’s indictment showcases the department’s ability to use all available investigative tools, including blockchain analysis, to uncover sophisticated frauds involving cryptocurrency and digital assets.”

Forsage’s smart contract diverted investor’s funds to other investors

The defendants allegedly coded and deployed smart contracts that systematized their combined Ponzi-pyramid scheme on the Ethereum (ETH), Binance Smart Chain, and Tron blockchains.

Analysis of the computer code underlying Forsage’s smart contracts allegedly revealed that, consistent with a Ponzi scheme, as soon as an investor invested in Forsage by purchasing a “slot” in a Forsage smart contract, the smart contract automatically diverted the investor’s funds to other Forsage investors, such that earlier investors were paid with funds from later investors.

Forsage was promoted as a legitimate, low-risk, and lucrative investment opportunity, but blockchain analytics confirmed that over 80% of Forsage investors received fewer ETH back than they had invested in Forsage’s Ethereum program, with over 50% of investors never receiving a single payout.

The defendants also allegedly coded at least one of Forsage’s accounts (known as the “xGold” smart contract on the Ethereum blockchain) in a way that fraudulently siphoned investors’ funds out of the Forsage investment network and into cryptocurrency accounts under the founders’ control, which was contrary to representations made to Forsage investors that “100% of the [Forsage] income goes directly and transparently to the members of the project with zero risk.”

DoJ uses blockchain analysis to uncover sophisticated crypto frauds

U.S. Attorney Natalie Wight for the District of Oregon, commented: “Today’s indictment is the result of a rigorous investigation that spent months piecing together the systematic theft of hundreds of millions of dollars. 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. It is a privilege to work alongside the agents involved in these complex cases.”

Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division, said: “While advancements in the virtual asset ecosystem bring new opportunities to investors, criminals are also finding new ways to orchestrate illicit schemes. The FBI remains committed to working alongside our domestic and international law enforcement partners to investigate and pursue subjects who orchestrate these scams and attempt to defraud investors.”

Inspector in Charge Eric Shen of the U.S. Postal Inspection Service (USPIS), Criminal Investigations Group, commented: “Technology is always changing and scams and swindles evolve alongside it. The U.S. Postal Inspection Service is committed to investigating those who engage in schemes involving cryptocurrency investment fraud, which can cause significant financial harm to unsuspecting victims. We urge individuals to be cautious when considering investments and to always do their due diligence before providing money or personal information to any individual or organization.”

Special Agent in Charge Ivan J. Arvelo of Homeland Security Investigations (HSI) New York, added: “These individuals are alleged to have used trendy technology and opaque language to swindle investors out of their hard-earned cash. But, as the indictment alleges, all they were doing was running a classic Ponzi scheme. The technology may change, but the scams remain the same and with the collaboration amongst all our partners, we’re able to see through the phony promises and bring the schemes to light. HSI is committed to being at the forefront of financial investigations, using the full extent of our investigative capabilities to track down criminals no matter what new tricks they use.”