The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against NovaTech, a crypto startup, accusing them of deceitfully raising over $650 million from over 200,000 investors, including many individuals in the Haitian-American community.
More information about NovaTech case
The SEC portrays NovaTech, established in 2019 by Cynthia and Eddy Petion, as an MLM scheme that enticed investors with promises of investing in lucrative crypto and foreign exchange markets. According to the SEC, NovaTech allocated only a small portion of investor funds for trading, while the majority was used for payments to existing investors and commissions for promoters.
The SEC has alleged that the Petions misappropriated millions of dollars of investor assets for their own benefit. As the company faced its downfall, a majority of customers, who were lured in by promoters who ignored the warning signs of NovaTech, discovered that they were unable to withdraw their funds. 
According to a statement from Eric Werner, director of the SEC’s Fort Worth regional office, NovaTech and the Petions have caused significant losses to numerous victims worldwide. “As we assert, MLM schemes of this magnitude necessitate promoters to sustain them, and this action serves as evidence that we will not only hold the main instigators of these extensive schemes responsible, but also the promoters who propagate their deceit by illegally soliciting victims.”
The SEC has included NovaTech promoters Martin Zizi, Dapilinu Dunbar, James Corbett, Corrie Sampson, John Garofano, and Marsha Hadley as defendants in its securities anti-fraud suit, along with the Petions. The agency is pursuing permanent injunctive relief, disgorgement of ill-gotten gains, and civil penalties. Zizi has already reached a partial settlement.
“Unfortunately, this seems to be a classic case of an affinity group Ponzi scheme,” Seth Goertz, a partner at law firm Dorsey & Whitney and a former assistant U.S. attorney with the Department of Justice, expressed in an email to Eltrys. The magnitude of the scheme is quite remarkable, and it makes one ponder whether it could have been accomplished if it were linked to conventional fiat currency instead of cryptocurrency. The elusive nature of cryptocurrency allows fraudsters to make extravagant promises of high returns more effortlessly.
The lawsuit against NovaTech is just the most recent development in the SEC’s extensive efforts to address questionable crypto ventures.
In 2020, Ripple, the blockchain developer and creator of the XRP cryptocurrency token, faced legal action from the SEC. The SEC accused Ripple of raising over $1.3 billion in 2013 through the sale of XRP to investors without proper registration as a security offering. Last month, the SEC accused BitClout founder Nader Al-Naji of fraud, alleging that the profits from the company’s cryptocurrency operations were used to purchase Al-Naji’s luxurious mansion in LA and lavish gifts. According to Axios, the SEC has recently reached out to venture capitalists regarding their association with Uniswap Labs, a decentralized crypto exchange operator.
During a recent speech at the William & Mary Business Law Review, Gurbir Grewal, the director of the SEC’s division of enforcement, highlighted the agency’s extensive track record of over 100 actions related to cryptocurrencies in the past decade.
