In March 2022, as it does every year, the Securities and Exchange Commission’s Division of Examinations (EXAMS) published its Examination Priorities, designed to highlight areas that the Agency views to be worthy of heightened scrutiny. Among these, EXAMS included “Emerging Technologies and Crypto-Assets,” noting that the SEC had observed “a proliferation of the offer, sale, and trading of crypto-assets.”[1]
Among the SEC’s recent enforcement actions in the cryptocurrency space is a civil suit targeting an alleged pyramid and Ponzi scheme run through the internet domain Forsage.io. The case will be of interest to industry watchers as a test of the SEC’s long-held position that the sale and promotion of cryptocurrencies and related assets are subject to securities laws.[2] Recently, SEC Chair Gary Gensler in comments before the Practicing Law Institute reiterated that most cryptocurrencies qualify as securities and that existing SEC rules provide sufficient guidance for the cryptocurrency industry.[3]
The complaint alleges that Forsage’s founders established cryptocurrency algorithmic, or “smart,” contracts on three widely used blockchains, Ethereum, Tron, and Binance.[4]
Forsage was set up to appear similar to a traditional multi-level marketing operation (MLM) where individuals are recruited to purchase and re-sell goods from existing sellers. In an MLM, a participant can earn money by increasing their own first-hand sales and also by recruiting…
