Commission Files Action Against Crypto Pyramid Scheme & Promoters
Offering frauds are one of the most prevalent types actions brought by the Commission, a point that has been discussed repeatedly. Those actions are not typically rolled together with crypto assets into a pyramid scheme operated off-shore appears to be having a more significant impact, however. One recently filed action is built on those elements, SEC v. Nova Tech Ltd., Civil action 1:24-cv-23059 (S.D. Fla. Filed August 12, 2024).
Named as defendants in this action are: NovaTech Ltd., a company registered and formed under the laws of St. Vincent and the Grenadines in September 2019; Cynthia Petion, a U.S. citizen currently residing in Panama who has been described as the founder, sole shareholder, Director, Managing Member and CEO of NovaTech; Eddy Petion, a U.S. citizen and the husband of Cynthia Petion who is believed to be in Panama; Martin Zizi, a promotor of NovaTech; and James Corbett, Corrie Sampson, Dapilinu, Dunbar, John Garofano and Marsha Hadley, each alleged to be involved in the scheme.
Over a four-year period, beginning in 2019, Cynthia and Eddy Petion operated a crypto trading investment and pyramid scheme largely through NovaTech. The multi-level marketing structure or MLM was used to raise crypto assets valued at over $650 million from over 200,000 investors in this country and others. Many of those targeted were in the Haitian-American community.
Potential investors were solicited through a variety of mechanisms. Those included public websites, social media, a network of promotors and others. Potential investors were told that the firm would pay average returns of 2-3% per week – its rate of return in recent weeks. Investors were also told that NovaTech had never posted a weekly trading loss. Yet in reality, the firm appears to have only traded a fraction of the investor assets it held, and those suffered significant trading losses. In reality, the sole source of new revenue appears to have been other investors – a typical pyramid scheme.
Mr. & Mrs. Petion also misappropriated assets from the scheme. This included transferring millions of dollars of commingled investor assets to themselves. Those assets were also used to make payments to existing investors. In addition, the couple made a series of false and misleading statements about the use of investor capital. Those included claims that the trading was profitable, the company was a “registered hedge fund,” and the firm was safe and secure. The other Defendants were instrumental in promoting and marketing the scheme.
The scheme collapsed in May 2023 following a series of actions by several U.S. states and Canadian provinces against it. Most investors were unable to withdraw their funds. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26072 (S.D. Fla. Filed August 12, 2024).