SEC Accuses Crypto Company NovaTech of Fraudulent Activities

The U.S. Securities and Exchange Commission (SEC) has initiated a lawsuit against the cryptocurrency enterprise NovaTech. It’s accused of deceptively amassing over $650 million from upwards of 200,000 investors, notably impacting the Haitian-American community.

According to the SEC, NovaTech, established in 2019 by Cynthia and Eddy Petion, is characterized as a pyramid scheme. It purportedly enticed investors with the promise of engaging in lucrative cryptocurrency and foreign exchange markets. However, the reality was starkly different, with only a small portion of the funds being used for trading. The majority was instead allocated for payouts to prior investors and commissions for its marketers, the SEC claims.

The SEC accuses the Petions of diverting millions from investor funds for their personal gain. Moreover, when NovaTech fell apart, the majority of its investors, having been recruited under minimized risks, were left unable to withdraw their funds.

“The actions of NovaTech and the Petions resulted in significant losses for countless individuals globally,” stated Eric Werner, the SEC’s Fort Worth regional office director. “Our allegations pinpoint that large pyramid schemes like this rely on recruiters to sustain them, and through today’s measures, we aim to hold responsible not only the scheme’s main figures but also those recruiters who expanded its reach by illegally engaging victims.”

In the SEC’s lawsuit targeting securities fraud, NovaTech promoters Martin Zizi, Dapilinu Dunbar, James Corbett, Corrie Sampson, John Garofano, and Marsha Hadley are also listed as defendants alongside NovaTech and the Petions. The SEC seeks a permanent injunction, the return of fraudulently obtained gains, and civil penalties; Zizi has consented to a partial settlement.

This scenario is being likened to a classic case of a ponzi scheme targeting specific groups, according to Seth Goertz, a Dorsey & Whitney law firm partner and ex-assistant U.S. attorney with the Department of Justice. “The magnitude of this scheme is remarkable, raising questions about whether its feasibility was enhanced by the nebulous nature of cryptocurrency, enabling easier promises of substantial returns compared to traditional currencies,” Goertz shared with TechCrunch.

This legal action against NovaTech is part of the SEC’s ongoing effort to regulate questionable cryptocurrency operations.

In its continued regulatory vigilance, in 2020, the SEC pursued legal action against Ripple, the blockchain developer behind the XRP cryptocurrency, for its alleged unregistered sale of XRP tokens exceeding $1.3 billion back in 2013. More recently, BitClout founder Nader Al-Naji faced SEC fraud charges, with allegations that crypto venture proceeds were utilized for personal indulgences. Additionally, the SEC has proactively questioned venture capitalists regarding their interactions with Uniswap Labs, a decentralized crypto exchange, as Axios unveiled.

Highlighting the SEC’s active stance on crypto regulation, Gurbir Grewal, director of the SEC’s division of enforcement, disclosed in a recent speech that the agency has conducted over 100 crypto-related enforcement actions in the last decade.