SEC Charges NovaTech and Executives in $650M Crypto Fraud Case

In an attempt to combat cryptocurrency fraud, the SEC has stepped up its efforts and has filed charges against NovaTech, its executives, and associated promoters for planning a multi-level marketing scheme that generated $650 million in digital assets.

The SEC filed a complaint with the U.S. District Court for the Southern District of Florida, claiming that, through NovaTech, Cynthia and Eddy Petion conducted a complex cryptocurrency investment scheme between 2019 and 2023. They promised investors that their money would be safe and that they would make quick profits. The SEC, however, asserts that the couple carried out a scam that ultimately resulted in the theft of millions of dollars’ worth of investor cash, together with a group of hired promoters that included Martin Zizi, Dapilinu Dunbar, James Corbett, Corrie Sampson, John Garofano, and Marsha Hadley.

The fraudulent operation, disguised as a legitimate investment opportunity, blocked investor withdrawals as it neared collapse. The SEC’s Director of the Fort Worth Regional Office, Eric Werner, emphasized the significant role promoters play in such schemes. He stated on August 12, “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.”

Legal Battles and Regulatory Criticism

This isn’t the first legal action NovaTech has faced. In June, New York Attorney General Letitia James also took legal steps against the company, accusing it of operating a criminal enterprise.

The ongoing regulatory crackdown has sparked debate within the crypto industry. Consensys attorney Bill Hughes questioned whether clear regulatory guidelines could have prevented such fraud. Critics argue that the SEC’s “regulation by enforcement” approach creates uncertainty, leading to more legal confrontations, such as those with Coinbase and Ripple. However, SEC officials, including Chair Gary Gensler, maintain that most cryptocurrencies fall under federal securities laws, justifying their strict regulatory stance.