The U.S. Securities and Exchange Commission （SEC） has filed charges against the founders of Novatech, accusing them of running a $650 million cryptocurrency pyramid scheme that deceived over 200,000 investors worldwide, with significant impacts on the Haitian-American community.
Points
- The SEC has charged Novatech founders Cynthia and Eddy Petion with running a $650 million crypto pyramid scheme.
- The scheme allegedly targeted over 200,000 investors, including many from the Haitian-American community.
- Novatech falsely claimed to invest in cryptocurrency and forex markets but primarily used new investor funds to pay existing investors and promoters.
- The SEC is seeking permanent injunctions, civil penalties, and the return of funds to defrauded investors.
In a decisive action against fraudulent activity in the cryptocurrency space, the U.S. Securities and Exchange Commission （SEC） has brought formal charges against Cynthia and Eddy Petion, the founders of Novatech, for allegedly operating a massive pyramid scheme that swindled over $650 million from more than 200,000 investors globally. The SEC’s complaint, filed on August 12, 2024, paints a damning picture of deception and financial misconduct, with significant ramifications for the victims, particularly within the Haitian-American community.
According to the SEC’s allegations, Novatech, which was presented to investors as a legitimate investment platform, lured participants with promises of daily profits from investments in cryptocurrency and foreign exchange （forex） markets. The company claimed to be a “registered hedge fund,” offering steady returns of up to 3% daily. However, the reality was starkly different. The SEC contends that Novatech only traded a minuscule portion of the funds it received, suffering substantial losses in the process. The bulk of the investors’ money was instead funneled into a classic Ponzi scheme, where funds from new investors were used to pay returns to earlier investors, creating a façade of profitability.
The SEC’s complaint highlights the significant impact on the Haitian-American community, which was specifically targeted through affinity fraud. The Petions and their promoters exploited cultural and religious connections to gain the trust of this community, using religious overtones and promises of financial freedom to solicit investments. As a result, many in this community suffered devastating financial losses, compounding the tragedy of the scheme.
In addition to the Petions, the SEC has charged several Novatech promoters, including Martin Zizi, Dapilinu Dunbar, James Corbett, Corrie Sampson, John Garofano, and Marsha Hadley. These individuals are accused of unlawfully soliciting investors and downplaying the risks associated with Novatech’s operations. The SEC’s Director of the Fort Worth Regional Office, Eric Werner, emphasized the agency’s commitment to holding not just the architects of such schemes accountable, but also those who help propagate the fraud by soliciting victims.
The charges against Novatech and its affiliates include violations of antifraud provisions and registration requirements under federal securities laws. Zizi has reportedly agreed to a partial settlement without admitting or denying the allegations, signaling a possible resolution of his involvement in the case.
The SEC’s legal action seeks permanent injunctive relief, civil penalties, and disgorgement of ill-gotten gains. This means that the agency is not only aiming to stop the fraudulent activities permanently but also to impose financial penalties on the perpetrators and recover the funds that were wrongfully taken from investors.
The case against Novatech is part of a broader crackdown on fraudulent schemes in the cryptocurrency sector. Earlier in June 2024, New York Attorney General Letitia James also filed a lawsuit against Cynthia and Eddy Petion, along with other entities linked to Novatech, on behalf of more than 11,000 New York City residents who were defrauded by the scheme. This lawsuit similarly accuses Novatech of running a Ponzi scheme and using deceptive marketing tactics to lure investors.
Novatech’s operations collapsed in May 2023, with most investors unable to withdraw their funds as the scheme unraveled. The SEC’s enforcement action is a critical step toward holding the perpetrators accountable and seeking justice for the thousands of victims who lost their hard-earned money.
解説
- Affinity Fraud in Crypto: The Novatech case underscores the dangers of affinity fraud in the cryptocurrency space, where scammers exploit community ties to build trust and deceive investors. This type of fraud is particularly insidious because it preys on the social and cultural connections that people rely on for security and trust.
- SEC’s Enforcement Actions: The SEC’s aggressive stance against Novatech is indicative of a broader effort to clean up the cryptocurrency industry. By targeting both the masterminds and the promoters of fraudulent schemes, the SEC aims to deter future misconduct and protect investors from similar scams.
- Impact on the Crypto Community: The fallout from the Novatech scheme highlights the need for greater vigilance among investors and stricter regulations in the crypto industry. As digital assets continue to grow in popularity, ensuring that investors have access to accurate information and are protected from fraud will be crucial for the industry’s long-term success.