- The US SEC has sued cryptocurrency firm NovaTech and its co-founders, alleging they operated a pyramid scheme that defrauded over 200,000 global investors of more than $650 million.
- NovaTech primarily targeted affinity groups, including Haitian-American church communities, through WhatsApp groups and promotional gatherings.
OUR TAKE
The NovaTech case exemplifies the critical role of regulatory bodies in safeguarding investors from fraudulent schemes. It underscores the need for vigilance in cryptocurrency investments, particularly in communities targeted by manipulative tactics. The legal actions signal a strong stance against financial misconduct and highlight the importance of investor education and awareness.
–Vicky Wu, BTW reporter
What happened
The United States Securities and Exchange Commission (SEC) has launched a lawsuit against cryptocurrency company NovaTech and its co-founders, Cynthia and Eddy Petion, alleging they defrauded over 200,000 investors globally, raising more than $650 million. The SEC asserts that the Petions promised investors their funds would be safe and that they would start making profits immediately. Instead, the couple is accused of using new investors’ money to repay earlier investors and pay commissions to promoters, while siphoning off millions of dollars for themselves. The scheme operated for four years until NovaTech’s collapse in May 2023.
The lawsuit follows a previous action taken by New York Attorney General Letitia James, who estimated the fraud to exceed $1 billion. Both the SEC and James have characterised the scheme as a pyramid, where companies pay bonuses or commissions to recruit new investors. The SEC also charged six NovaTech promoters with fraud, claiming they continued to recruit investors despite red flags such as delayed withdrawals and regulatory actions in the US and Canada. One of the promoters, Martin Zizi, has agreed to pay a $100,000 civil fine. Both lawsuits seek restitution for victims and civil fines.
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Why it’s important
This legal action highlights the ongoing challenges and risks associated with investing in cryptocurrencies and the importance of regulatory oversight. The case underscores how vulnerable communities, particularly Haitian-Americans, can be targeted by fraudulent schemes. The Petions allegedly appealed to victims’ religious faith through social media, Telegram, and WhatsApp, sometimes using the Haitian Creole language, with Cynthia Petion branding herself as the “Reverend CEO” and claiming NovaTech was part of “God’s vision.” This case serves as a stark reminder of the need for investors to exercise caution and due diligence when considering investments in the volatile and often unregulated cryptocurrency market.
The enforcement action by the SEC and New York Attorney General also demonstrates the commitment of regulatory bodies to protect investors and hold accountable those who engage in fraudulent activities. The outcome of these lawsuits will be closely watched and may set a precedent for future cases involving cryptocurrency fraud.
