The US state of Montana has issued a cease and desist order against Ethereum-based investment scheme Forsage, calling it a Pyramid scheme.
In the order issued last week, the state regulator said that it has received multiple complaints from the state residents about the scheme, which is violating the Montana Securities Act.
Forsage, which runs as a decentralized application (DApp), was once the highest gas consumer on Ethereum. It is headed by Lado Okhotnikov.
The investment model of the scheme is questionable as it does not sell any product and the only way to make money is by recruiting other people. Every member needs to recruit three more people to receive the payout. Money from the first two recruits goes directly to the recruiter, while deposits from the third go two steps up in the pyramid.
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“Forsage does not try to hide the fact they are a pyramid scheme,” Montana State Auditor, Troy Downing explained. “Members must pay with Ethereum cryptocurrency to the person above them to buy a position on the pyramid. The currency used to buy the position goes directly to the participant above.”
Not Authorized to Operate in the US
The project is based in the Philippines and is not licensed to operate in the United States. Though the scheme highlights having ‘zero risk’, the website clearly projects its pyramid structure.
Additionally, Forsage was flagged earlier in its home country for being a pyramid scheme and issued a warning to the local investors.
“Every investment carries risk,” Downing added. “A claim to the contrary is a significant red flag to walk away and alert our agency. Forsage appears to be a scam. Our agency is asking Montanans to stay away and urge their friends and family to do the same.”