A crypto firm that was first flagged by Canadian securities regulators is now facing allegations it defrauded investors in a US$650-million crypto Ponzi scheme.

The U.S. Securities and Exchange Commission (SEC) charged the crypto firm, Nova Tech Ltd. (NovaTech), and its principals, Cynthia and Eddy Petion, for allegedly operating a multilevel-marketing crypto scheme that took more than US$650 million from over 200,000 investors around the world.

The British Columbia Securities Commission and the Alberta Securities Commission first issued investor warnings about NovaTech in October 2022, and in early 2023 the Ontario Securities Commission issued a cease trade order against the firm, citing concerns about unregistered trading and illegal distribution activity.

In July 2024, Ontario’s Capital Markets Tribunal ruled that Cynthia Petion and NovaTech violated Ontario securities law by selling securities without registration or a prospectus, and by violating a cease trade order. A sanctions hearing is scheduled for Oct. 2.

In its complaint, the SEC said, “The scheme collapsed in or around May 2023, after investors experienced withdrawal delays and regulators in several U.S. states and Canadian provinces took action against, or issued fraud warnings about, NovaTech and the Petions. As NovaTech collapsed, most investors were unable to withdraw their investments, resulting in substantial losses.” 

The SEC’s complaint, which was filed in the U.S. District Court for the Southern District of Florida, charges NovaTech, the founders and certain promoters with fraud and registration violations. 

The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains and civil penalties. 

The allegations have not been proven.

According to the SEC’s complaint, NovaTech, which promised investors profits from crypto and foreign exchange trading, reported average returns of 2% to 3% per week, and claimed to never have suffered a weekly loss. 

“In reality, NovaTech appears to have traded only a small fraction of investor assets, it suffered significant trading losses, and it had no other known sources of revenues besides investor deposits,” the SEC alleged. “In other words, NovaTech was a pyramid scheme that depended on the recruitment of new investors or new investments from existing investors to fund its enterprise.” 

The regulator also alleged that millions of dollars were siphoned off by the Petions.

“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 office, in a release. 

The SEC also charged six others for allegedly helping to promote the scheme, alleging they recruited a large network of investors and promoters to the scheme and that NovaTech paid them “substantial commissions” for these efforts.

Without admitting or denying the charges, one of the alleged promoters partially settled the SEC’s allegations, agreeing to pay a US$100,000 penalty and to be permanently enjoined from future violations, with “other monetary remedies to be determined at a later date.” The partial settlement remains subject to court approval.