The U.S. Securities and Exchange Commission (SEC) is suing crypto startup NovaTech for allegedly fraudulently collecting greater than $650 million from over 200,000 investors, lots of them from the Haitian-American community.
The SEC Frame NovaTech was founded in 2019 by husband and wife team Cynthia and Eddy Petion as a multi-level marketing (MLM) scheme. It lured investors with the pretense of investing in profitable crypto and foreign exchange markets. In reality, NovaTech reserved only a fraction of investor funds for trading and used the bulk for payments to existing investors and commissions for promoters, based on the SEC.
The petitions diverted tens of millions of dollars of investor funds for themselves, the SEC alleges. And when the corporate collapsed, most customers – who had been recruited by promoters who downplayed NovaTech's red flags – were unable to make withdrawals.
“NovaTech and the Petitions have caused untold losses to tens of 1000’s of victims around the globe,” Eric Werner, director of the SEC's Fort Worth regional office, said in a press release. “As we contend, MLM schemes of this magnitude require initiators to support them, and today's motion demonstrates that we are going to hold accountable not only the first architects of those massive schemes, but additionally the initiators who propagate their fraud by unlawfully recruiting victims.”
In addition to NovaTech and the petitions, the SEC names NovaTech initiators Martin Zizi, Dapilinu Dunbar, James Corbett, Corrie Sampson, John Garofano and Marsha Hadley as defendants in its securities fraud lawsuit. The agency is searching for a everlasting injunction, disgorgement of ill-gotten gains and civil penalties; Zizi has already agreed to a partial settlement.
“Overall, unfortunately, this appears to be a typical special interest Ponzi scheme,” Seth Goertz, a partner at law firm Dorsey & Whitney and a former assistant U.S. attorney on the Department of Justice, told TechCrunch via email. “However, the scale and scale of the scheme is remarkable, and one all the time wonders if it could have been possible if it had been tied to traditional fiat money reasonably than cryptocurrency, which stays ethereal enough that scammers can more easily promise large profits.”
The lawsuit against NovaTech is just the most recent development within the SEC's broader crackdown on legally dubious crypto firms.
In 2020, the SEC sued Ripple, the blockchain developer and creator of the cryptocurrency token XRP, for allegedly raising greater than $1.3 billion by selling XRP in an unregistered securities offering to investors in 2013. Just last month, the SEC charged BitClout founder Nader Al-Naji with fraud, claiming that proceeds from the startup's crypto activities funded Al-Naji's LA mansion and gifts. And the SEC has sent letters to VCs over their involvement in decentralized crypto exchange operator Uniswap Labs. reported Axios on Monday.
In a recent address Gurbir Grewal, director of the SEC's enforcement division, said within the William & Mary Business Law Review that the agency has taken over 100 crypto-related actions up to now decade.
