The U.S. Securities and Exchange Commission (SEC) announced today that it has filed charges against Cynthia and Eddy Petion, the masterminds behind NovaTech Ltd., and several of their top promoters, for orchestrating a fraudulent scheme that duped over 200,000 investors worldwide in the crypto fraud scheme.
The crypto fraud scheme, which primarily targeted members of the Haitian-American community, raised more than $650 million in crypto assets from investors who were falsely promised lucrative returns on their investments.
What is a Crypto Fraud Scheme?
According to the SEC’s complaint, Petions ran NovaTech Ltd. from 2019 until its collapse in 2023 as a multi-level marketing (MLM) and crypto asset investment program. Investors were lured with promises of high returns through investments in crypto assets and foreign exchange markets. Cynthia Petion, a key figure in the scheme, assured investors that their investments were secure and that they would start profiting from day one, stating, “In this program, you are in profit from day one because again you have access to that capital.”
However, the reality was far different. The SEC alleges that the Petions used the majority of the funds collected from new investors to pay returns to earlier investors, a classic Ponzi scheme tactic.
Only a small fraction of the funds were actually used for trading in crypto and foreign exchange markets. Additionally, the Petions are accused of siphoning off millions of dollars for their personal use. As the scheme began to unravel, most investors found themselves unable to withdraw their investments, resulting in significant financial losses.
Role of the Promoters
The SEC’s complaint also highlights the roles of several key promoters in perpetuating the fraud. Martin Zizi, Dapilinu Dunbar, James Corbett, Corrie Sampson, John Garofano, and Marsha Hadley were instrumental in recruiting new investors into the scheme. These promoters were compensated with substantial commissions for the investors they brought in, creating a vast network that helped sustain NovaTech’s fraudulent operations.
Even as red flags began to emerge, including regulatory actions taken by U.S. and Canadian authorities against NovaTech, the top promoters continued to recruit new investors. They downplayed the significance of these warnings, contributing to the continued expansion of the crypto fraud scheme and the growing number of victims.
SEC’s Legal Action
The SEC has filed its complaint in the U.S. District Court for the Southern District of Florida, charging NovaTech, the Petions, Zizi, Dunbar, Corbett, and Sampson with violations of the antifraud provisions of federal securities laws. All defendants are also facing charges for registration violations. The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains, and civil penalties against the accused.
In a significant development, Zizi has agreed to a partial settlement of the charges against him. Without admitting or denying the allegations, Zizi has consented to pay a $100,000 civil penalty and has agreed to be permanently enjoined from future violations of the charged provisions. The final amount of other monetary remedies he may owe will be determined at a later date, pending court approval of the settlement.
SEC’s Investigation and Acknowledgments
The SEC’s investigation into NovaTech was led by a team from the Fort Worth Regional Office, including Catherine Rowsey, Todd Baker, and Jamie Haussecker, with support from Sejal Bhakta of the Crypto Assets and Cyber Unit. The investigation was supervised by Nikolay Vydashenko and B. David Fraser. Litigation is being handled by Patrick Disbennett and supervised by Keefe Bernstein.
The SEC also acknowledged the valuable assistance provided by several external agencies, including the Office of the New York Attorney General’s Investor Protection Bureau, the California Department of Financial Protection and Innovation, the British Columbia Securities Commission, and the Ontario Securities Commission. This cooperation highlights the extensive and collaborative effort required to bring such a complex and far-reaching scheme to justice.
Broader Implications
This crypto fraud scheme serves as a reminder of the risks associated with unregulated and fraudulent investment schemes, particularly in the rapidly evolving and often opaque world of crypto assets. The SEC’s actions highlight the agency’s commitment to protecting investors and holding accountable those who perpetrate financial fraud.
“NovaTech and the Petions caused untold losses to tens of thousands of victims around the world,” said Eric Werner, Director of the SEC’s Fort Worth Regional Office. “As we allege, MLM schemes of this size require promoters to fuel them, and today’s action demonstrates that we will hold accountable not just the principal architects of these massive schemes, but also promoters who spread their fraud by unlawfully soliciting victims.”
The case against NovaTech and its promoters continues, with the SEC seeking to recover as much as possible for the defrauded investors while sending a clear message to those who would seek to exploit others through fraudulent schemes.
