SEC Alleges $650 Million Crypto Pyramid Scheme By NovaTech Founders

On Monday, the US Securities and Exchange Commission (SEC) filed a lawsuit against NovaTech, an alleged crypto pyramid scheme, and eight of its promoters. 

In the lawsuit, the regulator accuses them of perpetrating fraud and violating federal securities laws in a scheme that raised more than $650 million in crypto assets from more than 200,000 investors worldwide, a significant number of whom were from the Haitian-American community.

NovaTech Scandal Exposed

The primary targets of the SEC’s charges are Cynthia and Eddy Petion, alongside their company, NovaTech. The SEC alleges that the Petions orchestrated a “fraudulent operation” under the guise of a multi-level marketing (MLM) and crypto asset investment program between 2019 and 2023. 

It is alleged that the company’s founders lured investors by falsely claiming that NovaTech would invest their funds in crypto assets and foreign exchange markets, assuring them of safety and immediate profitability.

In reality, the SEC found that NovaTech predominantly used investor funds to pay existing investors and promoters, allocating only a fraction of the funds towards actual trading activities. 

The complaint further asserts that the Petions misappropriated millions of dollars for personal gain. When NovaTech inevitably collapsed, most investors found themselves unable to retrieve their investments, resulting in substantial financial losses.

Founders Charged For Fraudulent Crypto Scheme

Eric Werner, Director of the SEC’s Fort Worth Regional Office, condemned NovaTech’s actions, stating that the scheme inflicted “immeasurable losses” on a multitude of victims worldwide. Werner stated:

As we allege, MLM schemes of this size require promoters to fuel them, and today’s action demonstrates that we will hold accountable not just the principal architects of these massive schemes, but also promoters who spread their fraud by unlawfully soliciting victims.

The SEC’s complaint also implicates NovaTech’s top promoters—Zizi, Dunbar, Corbett, Sampson, Garofano, and Hadley—for their “active recruitment” of investors and promoters, earning substantial commissions in the process. 

Despite being aware of “concerning red flags,” such as regulatory actions taken against NovaTech by US and Canadian authorities, it is alleged that these promoters continued to recruit investors while “downplaying the risks.”

The legal action, filed in the US District Court for the Southern District of Florida, charges NovaTech, the Petions, and the promoters with violating antifraud provisions of federal securities laws and registration violations. The SEC seeks permanent injunctive relief, disgorgement of illicit gains, and civil penalties to rectify the damages caused by the scheme.

At the time of writing, the total crypto market capitalization is valued at $2 trillion after hitting a monthly low of $1.69 trillion last week. Bitcoin, the largest cryptocurrency on the market, has consolidated above the $59,000 mark in recent hours after recording a 1% drop from the $60,000 mark in the same time frame. 

Featured image from DALL-E, chart from TradingView.com