[co-author: Stephanie Kozol]*
On June 6, New York Attorney General (AG) Letitia James filed suit against NovaTech Advisors, LLC, AWS Mining Pty Ltd., and several other entities, alleging the defendants orchestrated two consecutive, fraudulent cryptocurrency schemes that largely targeted Haitian nationals. Defendants Cynthia Petion and Eddy Petion allegedly defrauded investors of tens of millions of dollars by promising large returns in WhatsApp group chats and social media advertisements in Haitian creole by appealing to religious beliefs. The action highlights the regulation-by-enforcement nature of the cryptocurrency industry, and underscores the need for comprehensive, consistent regulation.
According to the AG, the Petions initially recruited investors on behalf of AWS Mining, an Australian entity, by promising investors up to 20% monthly returns, and by providing bonuses for recruiting other investors. The scheme purported to generate returns by engaging in cryptocurrency mining. However, in April 2019, AWS Mining informed investors that it had terminated “unprofitable” mining contracts, stopped making monthly payments, and refused to return investors’ principal.
Once AWS Mining collapsed in 2019, the individual defendants allegedly founded NovaTechFX, a bitcoin trading firm which utilized a similar pyramid scheme structure. The scheme allegedly recruited many of the initial AWS Mining investors. Leveraging religious tropes across social media platforms, the individual defendants recruited more than 200,000 investors, who collectively transferred more than $1 billion in cryptocurrency to NovaTechFx. According to the complaint, NovaTechFx only invested $26 million of investors’ money, and fabricated profits by paying earlier investors with funds from new investors.
In February 2022, cryptocurrency platform Gemini alerted customers who used its platform that it believed NovaTechFx was a Ponzi scheme. Gemini froze assets to and from NovaTechFx while Canadian and state securities regulators brought enforcement actions against NovaTechFx. The AG’s complaint alleges 10 causes of action, including securities fraud under the Martin Act, failure to register, engaging in illegal pyramid and Ponzi schemes, and repeated and persistent fraud and illegality. The suit further alleges that the defendants engaged in the offering and sale of unregistered securities.
Why It Matters
This case serves as a reminder that regulating cryptocurrency is one of the top priorities of the New York AG’s office. While AG James had previously proposed the CRPTO Act, which would have allowed the AG to enforce regulations specific to cryptocurrency, no comprehensive regulations have been enacted in New York. In the absence of regulations, state AGs and other regulators are left with no choice but to regulate cryptocurrency by enforcing general state business laws. New York’s action against NovaTechFx is one of many actions over the last several years by state AGs and federal regulators aiming to curtail illegal practices in the cryptocurrency industry.
Additional articles on state AG offices in the financial services space include:
*Senior Government Relations Manager
