SEC Accuses Crypto Firm NovaTech of Fraud

The SEC has sued crypto startup NovaTech for allegedly defrauding over $650 million from more than 200,000 investors, including many Haitian Americans.

The Securities and Exchange Commission (SEC) characterizes NovaTech, established in 2019 by Cynthia and Eddy Petion, as a multi-level marketing (MLM) scheme.

The company claimed to invest in profitable crypto and foreign exchange markets to attract investors. According to the SEC, NovaTech allocated only a small portion of investor funds for trading, prioritizing payments to existing investors and commissions for promoters.

The SEC alleges that the Petions diverted millions of dollars in investor assets for their benefit. When NovaTech collapsed, most of its customers, recruited by promoters who downplayed the company’s red flags, could not make withdrawals.

Eric Werner, director of the SEC’s Fort Worth regional office, stated, “NovaTech and the Petions caused untold losses to tens of thousands of victims around the world.”

“We contend that MLM schemes of this magnitude necessitate promoters to sustain them. Today’s action shows that we will hold accountable not only the principal architects of these substantial schemes but also the promoters who unlawfully solicit victims to disseminate their fraud.”

The SEC has named NovaTech promoters Martin Zizi, Dapilinu Dunbar, James Corbett, Corrie Sampson, John Garofano, and Marsha Hadley as defendants in its securities anti-fraud suit, in addition to NovaTech and the Petions.

The agency is pursuing permanent injunctive relief, disgorgement of ill-gotten gains, and civil penalties. Zizi has already consented to a partial settlement.

“Unfortunately, this appears to be a textbook affinity group ponzi scheme,” stated Seth Goertz, a partner at Dorsey & Whitney and a former assistant U.S. attorney with the Department of Justice, in an email to TechCrunch.

“However, the scheme’s size and scale are remarkable, and one cannot help but wonder whether it would have been feasible if it had been linked to conventional fiat currency rather than cryptocurrency, which is sufficiently ethereal that fraudsters can more easily guarantee substantial returns.”

The lawsuit against NovaTech is merely the most recent addition to the SEC’s comprehensive initiative to address crypto ventures that are legally questionable.

In 2020, the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple, the blockchain developer and creator of the XRP cryptocurrency token, for purportedly raising over $1.3 billion in 2013 by selling XRP in an unregistered security offering to investors.

The SEC they recently charged BitClout founder Nader Al-Naji with fraud, alleging that the proceeds from the startup’s crypto activities were used to purchase Al-Naji’s LA mansion and presents.

This occurred just last month. And on Monday, Axios reported that the SEC had sent letters to VCs regarding their involvement with decentralized crypto exchange operator Uniswap Labs.

Gurbir Grewal, director of the SEC’s enforcement division, stated in a recent address at the William & Mary Business Law Review that the agency has implemented over 100 crypto-related actions in the past decade.