Suit Seeks Over $8B in Damages From Alleged Ponzi Scheme Operators

NovaTech, registered in St. Vincent and the Grenadines, its executives and directors, and Does 1-500 conspired to commit fraud via a cryptocurrency Ponzi scheme targeted to investors “with little to no experience” in trading crypto assets and foreign exchange, alleged a racketeering class action Monday in U.S. District Court for the Southern District of New York in Manhattan.

Beginning “at least as early as 2019," NovaTech offered and sold securities in the form of investment contracts in the U.S. through solicitations on its website advertising the contracts as “packages,” said the complaint, brought by plaintiff Avis Mullins, a New York resident. It positioned itself as a “crypto asset and forex trading platform” that used investor funds to engage in crypto asset and foreign exchange trading, “which in turn would generate returns for investors” who bought the packages, it said.

NovaTech claimed to also generate revenue through the operation of Bitcoin automated teller machines by an affiliate, Smart Bit. NovaTech told investors the profits from its Bitcoin ATM business would be included in the distributions it paid out to package purchasers. It facilitated deposits and withdrawals using crypto assets Tether, Bitcoin, Ethereum and Litecoin, the complaint said.

The defendant didn’t provide financial statements to investors but instead provided a “simple line chart” showing its purported weekly profits and losses and purported monthly profits over time, the complaint said. The charts showed NovaTech averaged 3% returns per week for investors “and never incurred a weekly loss,” it said.

As part of its solicitations, NovaTech used a “multi-level marketing scheme” that rewarded investors for “inducing others to send money” to NovaTech, the complaint said. Investors would be paid a “referral bonus based on the amount of funds deposited by the investors that they recruited,” it said. Plaintiffs and class members would also be paid additional referral bonuses when the investors that they recruited brought in new investors, it said.

In fact, NovaTech was luring investors into high-yield investment programs (HYIPs), “unregistered investments typically run by unlicensed individuals” that are “often frauds,” the complaint said. A referral program is a key element of most HYIPs, which “usually leads to investors sharing information about the HYIP with their friends and family and promoting HYIPs on social media,” it said.

The packages offered by NovaTech, CEO Cynthia Petion and Chief Operating Officer Eddy Petion “were securities that were neither qualified nor exempt from the qualification requirement” under U.S., California, Wisconsin, New York and Washington securities acts; none of the jurisdictions “ever issued a license, permit and or authorization” to any of the defendants to sell them, it said.

Defendants falsely represented that NovaTech is a registered hedge fund in the U.S. and is a registered investment adviser and broker, said the complaint. Defendants also failed to disclose that the offer or sale of NovaTech’s securities “were not qualified" anywhere in the U.S., that it didn't provide any qualifications “to substantiate claims that investors’ funds are managed and traded by experienced traders," that it didn't disclose that in March 2011, Cynthia and Eddy Petion filed for Chapter 7 bankruptcy and that in August 2019 a debt buyer sued Cynthia Petion in the Circuit Court of the 15th Judicial Circuit for Palm Beach County, Florida, for breach of contract and unjust enrichment, it said. In that suit, the plaintiff alleged that Petion failed or refused to repay a loan.

Other incidents the defendants failed to disclose, said the complaint: A mortgage lender sued the Petions in an action to foreclose a defaulted mortgage on property the defendants held; in August 2022, NovaTech FX received a securities fraud warnings from the Central Bank of Russia; in October 2022, the British Columbia Securities Commission warned against NovaTech FX as a Ponzi scheme, and in November 2022, NovaTech FX received a cease-and-desist letter from the California Department of Financial Protection and Innovation involving a fraud claim.

Named defendants recruited hundreds of class members to invest in the “Ponzi scheme,” said the complaint. “The scam would not have been nearly as successful without the participation of each named Defendant and the John Does,” it said. Does 1-500 worked as NovaTech “ambassadors,” it said, and with discovery, plaintiff Mullins will identify ambassadors who assisted in the recruitment of "over a million people and the collection of over $2.3 billion dollars,” it said.

Among Mullins’s 25 counts are four claims of racketeering, breach of contract, breach of covenant of good faith and fair dealing, unjust enrichment, conversion, fraud, intentional misrepresentation, civil conspiracy, infliction of emotional distress and violations of the Exchange Act and state securities acts. The complaint seeks punitive damages of not less than $6 billion and monetary damages of not less than $2 billion, treble monetary damages, plus litigation expenses, it said.