Key Points
- The SEC alleges NovaTech operated as a fraudulent crypto trading investment and pyramid scheme, raising over $650 million from more than 200,000 investors between June 2019 and May 2023.
- Several high-level promoters are charged with continuing to market NovaTech despite being aware of red flags indicating it was not a legitimate investment program, including regulatory actions and withdrawal issues.
Crypto Firm and Founders Accused of Massive Fraud
The U.S. Securities and Exchange Commission (SEC) has filed charges against crypto firm Nova Tech Ltd. (NovaTech), its founders, and several promoters for allegedly operating a $650 million fraudulent crypto trading and pyramid scheme. The complaint, filed in the U.S. District Court for the Southern District of Florida, accuses the defendants of violating multiple securities laws between June 2019 and May 2023.
According to the SEC, NovaTech, founded by Cynthia and Eddy Petion, claimed to pool investors’ crypto assets for trading in cryptocurrency and foreign exchange markets. The company promised weekly profits to investors from this supposed trading activity. However, the SEC alleges that NovaTech traded only a small fraction of investor assets, suffered significant losses, and had no known revenue sources besides investor deposits.
The complaint states that NovaTech raised over $650 million worth of crypto assets from more than 200,000 investors in the U.S. and abroad. Many of these investors were reportedly from the Haitian-American community, which the Petions and some promoters specifically targeted.
Multi-Level Marketing Structure and False Claims
The SEC alleges that NovaTech operated using a multi-level marketing (MLM) structure, incentivizing promoters to recruit new investors into their “downlines.” The company’s marketing materials focused primarily on persuading investors to recruit others, offering generous commissions.
The complaint details several false and misleading statements that NovaTech and the Petions allegedly made. These include claims about using investor assets for trading, the profitability of NovaTech’s trading, its status as a “registered hedge fund,” and the safety and security of investments. The SEC asserts that NovaTech fabricated trading results, with Cynthia Petion manually entering weekly performance percentages into the company’s system.
Promoters Charged Despite Awareness of Red Flags
In addition to NovaTech and the Petions, the SEC has charged six promoters who reached high ranks in the company’s MLM program. Four promoters – Martin Zizi, James Corbett, Corrie Sampson, and Dapilinu Dunbar – are accused of continuing to promote NovaTech despite being aware of significant red flags.
These red flags included regulatory actions against NovaTech in Canadian provinces and California, as well as issues with investor withdrawals. The SEC alleges that these promoters continued marketing NovaTech and actively sought to discredit or undermine regulatory actions and discourage investors from contacting authorities.
The promoters allegedly marketed the scheme by claiming to have special insight and knowledge about NovaTech through their relationships with the Petions. They used this position to market and promote the scheme. They continued to advise investors about the merits of investing in NovaTech even after becoming aware of the red flags.
Collapse and Investor Losses
The scheme allegedly collapsed around May 2023 after investors experienced withdrawal delays and regulators in several U.S. states and Canadian provinces took action against NovaTech. The SEC claims that most investors could not withdraw their investments, resulting in substantial losses.
The complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties against all defendants. Additionally, the SEC requests that the court prohibit the defendants from participating in certain future marketing programs and securities offerings.
This case is a stark reminder of the risks associated with crypto investment schemes, particularly those utilizing MLM structures. It underscores the importance of thorough due diligence and skepticism when approached with promises of consistently high returns in the volatile crypto market.
As the legal proceedings unfold, this case may have significant implications for the broader crypto industry. It could lead to increased scrutiny of similar investment programs and stricter enforcement of securities laws in the digital asset space. The involvement of high-level promoters who allegedly continued to market the scheme despite awareness of red flags highlights the need for investors to be cautious of endorsements, even from seemingly trustworthy sources.
