The US Securities and Exchange Commission (SEC) has filed charges against cryptocurrency company NovaTech and its co-founders for allegedly orchestrating a $650 million fraud scheme, while also fining broker-dealer OTC Link LLC $1.19 million for anti-money laundering (AML) violations.

SEC Charges NovaTech with $650 Million Crypto Fraud

In a complaint filed in the US District Court for the Southern District of Florida, the SEC accused NovaTech and its married co-founders, Cynthia and Eddy Petion, of defrauding over 200,000 investors worldwide through a multi-level marketing (MLM) scheme. The company allegedly raised funds by promising to invest in crypto assets and foreign exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term markets.

“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 SEC claims that instead of investing funds as promised, NovaTech used new investor money to pay earlier investors and promoter commissions, while the Petions allegedly siphoned millions for personal use. The scheme reportedly targeted the Haitian-American community and operated from 2019 until its collapse in May 2023.

Six NovaTech promoters were also charged for their roles in recruiting investors, even after becoming aware of regulatory actions against the company. One promoter, Martin Zizi, has agreed to pay a $100,000 civil penalty to settle the charges partially.

Today we announced charges against Cynthia and Eddy Petion and their company, NovaTech Ltd., for operating a fraudulent scheme that raised more than $650 million in crypto assets from 200,000+ investors, including many in the Haitian-American community. https://t.co/MraCGrWeTO

— U.S. Securities and Exchange Commission (@SECGov) August 12, 2024

This marks another multimillion-dollar action by the SEC against a cryptocurrency company recently. Two weeks ago, in collaboration with the Department of Justice (DoJ), the Commission charged Nader Al-Naji, the founder of the cryptocurrency social media platform BitClout, with wire fraud and the sale of unregistered securities totaling $257 million.

OTC Link Fined for AML Violations

In a separate action, the SEC announced charges against OTC Link LLC for failing to file Suspicious Activity Reports (SARs) over a three-year period. OTC Link, which operates three alternative trading system platforms for over-the-counter securities, allegedly lacked proper AML procedures to monitor transactions for suspicious activity.

“Broker-dealers are critical gatekeepers to the securities markets and must diligently monitor for suspicious transactions,” said Tejal D. Shah, Associate Regional Director of the SEC's New York Regional Office. “When firms like OTC Link fail to file SARs, they deprive regulators and law enforcement of important information about suspicious activity.”

Today we announced charges against OTC Link LLC, a NY-based broker-dealer, for failing to file Suspicious Activity Reports for more than three years. OTC Link agreed to pay $1.19 million to settle the charges. https://t.co/r70QCglUUd

— U.S. Securities and Exchange Commission (@SECGov) August 12, 2024

OTC Link agreed to pay a $1.19 million penalty and engage a compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term consultant to review its AML policies without admitting or denying the SEC's findings.

Just last week, the investment banking firm Piper Sandler agreed to pay $16 million in civil penalties to resolve inquiries by U.S. regulators concerning its record-keeping practices. Announced on Tuesday, this settlement represents a further step in the ongoing enforcement of compliance with communication standards on Wall Street.