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| SEC Files Lawsuit Against NovaTech Crypto Startup for Alleged $650 Million Fraud Targeting Over 200,000 Investors Image credit: Pixabay |
The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against NovaTech, a crypto startup, accusing it of fraudulently raising over $650 million from more than 200,000 investors, many of whom are part of the Haitian-American community. Founded in 2019 by Cynthia and Eddy Petion, the SEC characterizes NovaTech as a multi-level marketing (MLM) scheme, misleading investors by promising profitable investments in cryptocurrency and foreign exchange markets.
Allegations of Misappropriation and MLM Scheme
According to the SEC, NovaTech only used a small portion of the investor funds for trading, while the majority was directed toward payments to existing investors and commissions for promoters. The lawsuit also claims that the Petions siphoned off millions of dollars for personal use. As the company collapsed, most investors were left unable to withdraw their funds, many of whom were recruited by promoters who downplayed the risks and ignored red flags.
SEC's Broader Efforts Against Dubious Crypto Ventures
This lawsuit against NovaTech is part of the SEC’s ongoing efforts to crack down on legally questionable crypto ventures. In recent years, the agency has pursued numerous cases against cryptocurrency companies. Notable examples include the 2020 lawsuit against Ripple Labs for allegedly raising over $1.3 billion through an unregistered securities offering, and a recent fraud charge against BitClout founder Nader Al-Naji, accused of using proceeds from crypto activities to fund personal luxuries.
Legal Actions Against NovaTech and Promoters
In its suit, the SEC not only targets NovaTech and the Petions but also names several promoters—Martin Zizi, Dapilinu Dunbar, James Corbett, Corrie Sampson, John Garofano, and Marsha Hadley—as defendants. The SEC is seeking permanent injunctive relief, the return of ill-gotten gains, and civil penalties. Zizi has already agreed to partially settle the charges. The SEC’s Fort Worth regional office director, Eric Werner, emphasized that the agency will hold accountable not only the principal architects of these schemes but also the promoters who unlawfully solicit victims.
Analysis and Expert Opinion
Legal experts view NovaTech’s case as a classic example of an affinity group Ponzi scheme. Seth Goertz, a partner at Dorsey & Whitney and former assistant U.S. attorney, noted that the size and scale of NovaTech’s scheme are significant. He also suggested that the use of cryptocurrency might have made it easier for fraudsters to lure investors with promises of grand returns, given the often-ethereal nature of digital currencies.
SEC’s Continued Vigilance in the Crypto Space
The SEC’s lawsuit against NovaTech is just the latest move in a broader campaign to regulate and enforce laws in the fast-evolving cryptocurrency sector. Gurbir Grewal, director of the SEC’s division of enforcement, highlighted in a recent address that the agency has taken over 100 crypto-related actions over the past decade, underscoring its commitment to curbing fraudulent activities in the industry.
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