On Monday the SEC charged crypto investment startup NovaTech Ltd. and its husband-and-wife owners Cynthia and Eddy Petion with fraud for orchestrating a Ponzi-like scheme that raised more that $650m in crypto assets. The agency also charged six of the company’s promoters with fraud: Martin Zizi, Dapilinu Dunbar, James Corbett, Corrie Sampson, John Garofano, and Marsha Hadley.

The scheme ultimately netted over 200,000 investors, many of whom were part of the Haitian-American community. Many investors were aggressively targeted in prayer groups with promises of wealth.

These charges come two months after New York Attorney General Letitia James sued NovaTech in state court alongside related crypto-mining company AWS Mining. That lawsuit estimated total investor losses at over $1 billion, of which only $24m was ever used for trading. James claimed that Cynthia Petion considered her investors to be members of a “cult” – her job title is listed as “Reverend CEO” on LinkedIn.

For four years, NovaTech operated a multi-level marketing and crypto investment program, incentivizing the company’s promoters to recruit other promoters and investors in exchange for substantial commissions. In her lawsuit, James referred to that incentive structure as a pyramid scheme.

Red flags

The SEC charged six NovaTech promoters with fraud for continuing to recruit investors despite red flags that their company was illegitimate. One of these promoters, Martin Zizi, has already agreed to pay a $100,000 civil fine in a partial settlement.

The company told investors that they would have continuous access to their capital and would be able to withdraw it at any time. However, the SEC claimed that NovaTech used later investors’ funds to pay earlier investors and company promoters, in an operation reminiscent of a Ponzi scheme. According to the complaint, NovaTech never listed a weekly trading loss.

The Petions also spent millions of dollars of funds designated for investment on themselves. By the time the company collapsed in May 2023, most investors found that their money was irretrievable.

Rules violations

• NovaTech, the Petions, and four promoters (Zizi, Dunbar, Corbett and Sampson) are accused of violating antifraud provisions Section 17(a) of the Securities Act.
• NovaTech, the Petions, and three promoters (Dunbar, Corbett and Sampson) are accused of violating the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
• The complaint also charges all defendants with violating the securities-registration provisions of Sections 5(a) and 5(c) of the Securities Act.
• All six named promoters (Zizi, Dunbar, Corbett, Sampson, Garofano, and Hadley) are charged with violating the broker-registration provisions of Section 15(a) of the Exchange Act. 

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