SEC Files Fraud Charges Against Promoters of NovaTech, Alleged $650M Crypto Pyramid Scheme

• The U.S. SEC has filed a lawsuit against a crypto pyramid scheme and its operators. The regulator says they stole $650 million from 200,000 investors around the world.

• NovaTech largely preyed on affinity groups, including Haitian-American churchgoers via WhatsApp groups and promotional events.

The U.S. Securities and Exchange Commission (SEC) filed suit against an alleged crypto pyramid scheme, NovaTech, and eight of its promoters on Monday, charging them with fraud and multiple violations of federal securities laws.

NovaTech allegedly scammed investors out of around $650 million over a four-year period, the SEC said in its filing. The lawsuit comes two months after New York Attorney General Letitia James filed suit against NovaTech, its founders, and another alleged pyramid scheme with ties to NovaTech.

According to the SEC’s complaint, NovaTech and its promoters preyed on certain affinity groups – largely, Haitian Creole-speaking churchgoers in the U.S. and abroad – via WhatsApp groups and promotional events, convincing over 200,000 investors around the world to fork over a collective $650 million between June 2019 and May 2023, when the scheme collapsed.

The company’s founders, American married couple Cynthia and Eddy Petion, who are now believed to be living in Panama, and promoters – including Martin Zizi, James Corbett, Corrie Sampson, Dapilinu Dunbar, John Garofano and Marsha Hadley, all named defendants in the SEC’s lawsuit – used “religious overtones” when soliciting investors. Cynthia Petion dubbed herself the “Reverend CEO” in NovaTech promotional materials and on her social media profiles, and claimed that God sent her a “vision” of starting the company while she was brushing her teeth.

NovaTech’s would-be investors believed that their investments would be pooled and then traded in the crypto and foreign exchange markets. NovaTech’s marketing materials promised investors 2-3% returns per week, according to the SEC, and purportedly never posted a weekly trading loss.

But according to the SEC, only a small fraction of investors’ money was ever actually invested – and the money that was invested suffered “significant trading losses.” Instead, the Petions and their employees allegedly operated a Ponzi scheme, using new investors’ money to make payments to earlier investors. They also allegedly transferred millions of dollars of investor funds to themselves.

The scheme began to unravel in October 2022, as investors began to experience significant delays when attempting to withdraw their funds from the site. Shortly after the withdrawal troubles began, several state securities regulators in the U.S. and Canada issued cease-and-desist orders against NovaTech. By May 2023, the Petions shut down NovaTech and took its website offline, leaving the remaining investors unable to withdraw their funds.

The SEC’s complaint is alleging that NovaTech and the Petions violated the anti-fraud and securities-registration provisions of the federal securities laws. The assorted promoter defendants are accused of violating the antifraud, securities-registration and broker-registrations provisions of the federal securities laws.

The SEC is seeking permanent injunctive relief, disgorgement plus prejudgment interest, and civil penalties.

One defendant, Martin Zizi, has already agreed to a partial settlement. Without admitting or denying the charges against him, Zizi agreed to pay a $100,000 civil penalty and to be permanently enjoined from future securities violations. The partial settlement must still be approved by a judge.

Edited by Nikhilesh De.

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Cheyenne Ligon is a CoinDesk news reporter with a focus on crypto regulation and policy. She has no significant crypto holdings.