SEC Takes Action Against NovaTech and Its Promoters for Alleged Crypto Pyramid Scheme
The U.S. Securities and Exchange Commission (SEC) has initiated legal proceedings against NovaTech, a company accused of operating a fraudulent cryptocurrency pyramid scheme, along with eight of its promoters. This lawsuit, filed on a Monday, alleges that the scheme defrauded investors of approximately $650 million over a span of four years. The SEC’s action follows earlier legal steps taken by New York Attorney General Letitia James, who also filed a lawsuit against NovaTech and its founders, highlighting the serious legal implications surrounding this case.
NovaTech is accused of targeting specific communities, particularly among Haitian Creole-speaking churchgoers both within the U.S. and internationally. The promoters reportedly utilized platforms such as WhatsApp and organized promotional events to solicit investments from over 200,000 individuals globally. This outreach strategy was not only manipulative but also deeply exploitative, leveraging the trust of these communities to extract substantial financial commitments between June 2019 and May 2023, which ultimately led to the collapse of the scheme.
Details of the Allegations
The SEC’s complaint highlights the founders of NovaTech, Cynthia and Eddy Petion, an American couple now believed to reside in Panama. Their role in this alleged scheme was not limited to merely overseeing operations; they actively participated in the solicitation of investments. The promoters named in the SEC’s lawsuit—Martin Zizi, James Corbett, Corrie Sampson, Dapilinu Dunbar, John Garofano, and Marsha Hadley—were also integral to the fraudulent activities. The Petions invoked religious sentiments in their marketing materials, with Cynthia Petion referring to herself as the “Reverend CEO.” This title was not merely ornamental; it was part of a broader strategy that intertwined spirituality with financial investment, creating a facade of legitimacy to deceive potential investors.
Investors were led to believe that their funds would be pooled and actively traded in both the cryptocurrency and foreign exchange markets, with promotional materials promising astonishing returns of 2-3% per week. These claims were enticing, especially in a market where many were seeking quick returns on investments. However, the reality was starkly different; the SEC alleges that only a minuscule portion of the invested funds was ever utilized for actual trading. In fact, the scheme operated in a manner typical of a Ponzi scheme, where returns to earlier investors were paid using the capital of new investors, rather than from legitimate profits.
Collapse of the Scheme
The fraudulent practices began to unravel in October 2022, as investors started facing significant challenges when trying to withdraw their funds from the NovaTech platform. The withdrawal issues raised red flags, prompting several state securities regulators in the U.S. and Canada to issue cease-and-desist orders against the company. By May 2023, the situation escalated as the Petions decided to shut down NovaTech and took its website offline, effectively leaving countless investors stranded and unable to access their funds.
Legal Implications and Potential Outcomes
The SEC’s complaint includes serious allegations that NovaTech and the Petions violated various provisions of federal securities laws, particularly concerning anti-fraud measures and the registration of securities. The promoters are also accused of breaching multiple securities laws, including those pertaining to broker registration. The SEC is now seeking several forms of legal recourse including:
- Permanently injunctive relief: This would prevent NovaTech and its promoters from engaging in any future securities violations.
- Disgorgement: The SEC aims to recover the funds that were unlawfully obtained through the scheme, alongside prejudgment interest.
- Civil penalties: Financial penalties imposed on the defendants to deter future violations.
One of the defendants, Martin Zizi, has already agreed to a partial settlement with the SEC. Without admitting or denying the allegations, Zizi consented to pay a civil penalty of $100,000 and to be permanently enjoined from future securities violations. However, this settlement is still pending approval by a judge, indicating that while some legal proceedings are progressing, the overall case remains complex and ongoing.
This case serves as a stark reminder of the potential risks associated with cryptocurrency investments, particularly in schemes that promise unusually high returns with little transparency. As the SEC continues its investigation and legal actions, it emphasizes the importance of due diligence, especially in financial matters that can significantly impact individuals and communities.