The Attorney General of the State of New York has sued two cryptocurrency trading companies NovaTechFx and AWS Mining Pty Ltd. for allegedly defrauding investors of over $1 billion. According to a press release from June 6, the companies are accused of running a pyramid scheme that defrauded hundreds of thousands of investors of over a billion dollars. The lawsuit seeks to ban AWS Mining, NovaTechFx, and its founders from doing business in New York and to secure disgorgement and damages.
Social Media Tactics Used to Defraud Investors:
According to an investigation by the Office of the Attorney General (OAG), the companies targeted immigrant communities, particularly Haitians, through social media and community WhatsApp group chats with fraudulent promises of high returns on investments. The lawsuit alleges that AWS Mining and its founders Cynthia and Eddy Petion, James Corbett, Martin Zizi, and Frantz Ciceron promised investors 15 to 20 percent monthly returns, 200 percent returns on investments within 15 months, and bonuses for recruiting new investors. However, the company did not generate enough revenue to pay back its investors and collapsed in 2019, causing investors millions of dollars in losses.
Cynthia and Eddy Petion went on to find cryptocurrency trading company NovaTechFx and specifically targeted Haitian communities through social media advertisem*nts in Creole, appealing to the religious beliefs of investors. They misrepresented their company and advertised high profits from trading of approximately two to four percent per week, promoted recruitment bonuses, and promised that investors could withdraw their funds at any time.
From August 2019 through April 2023, investors deposited over a billion dollars worth of cryptocurrency with NovaTechFx. According to court filings, Cynthia Petion described herself as a ‘Reverend CEO’ frequently referencing religion in her advertisem*nts. “Defendants Zizi and Ciceron promoted regular prayer meetings for their NovaTechFx downlines under the NovaTechFx logo using fliers which claimed that “A team that prays together, stays together & grows together,” reveals the document. Zizi even likened Petition to abolitionist Harriet Tubman in one instance.
The company was advertised to investors as a trading platform that generated profits from trading investors’ cryptocurrency. However, only $29 million of the total 1 billion worth of deposits were traded on the platform, while the vast majority stayed in the company’s wallets.
The company would release fabricated reports of weekly profits and pay positive returns to investors, regardless of market fluctuations. The payments came from the corpus of non-traded funds, similar to a Ponzi scheme, where investors are paid profits from money deposited by other investors. Eventually, the company collapsed in May 2023, and tens of thousands of investors could not withdraw their deposits.
New York Attorney General Seeks Ban and Damages from Crypto Firms:
“Thousands of New Yorkers were falsely promised better lives if they simply trusted NovaTechFx and AWS Mining with their money, but it was all a lie,” said Attorney General Letitia James. “These cryptocurrency companies targeted immigrant and religious communities with promises of financial freedom but instead stole their money and drained their life savings. We are seeing the real dangers of unregulated cryptocurrency platforms with schemes like these, but New Yorkers can rest assured that we will use the tools at our disposal to crack down on crypto fraudsters.”
In its court filings, the OAG alleges that the defendants violated the Martin Act (New York General Business Law article 23-A, sections 352–353), which regulates securities fraud in the state of New York, by failing to register as securities trades and defrauding investors through deception and false promises. The OAG is also empowered by New York Executive Law 63(12) to investigate repeated fraud cases.
The lawsuit asks the court to permanently prohibit the accused from engaging in the trade of cryptocurrencies or participating in any multi-level marketing or pyramid schemes. Further, the court is asked to direct the defendants to produce all accounts of their company and reimburse the plaintiffs for their losses.
Why It Matters?
The Attorney General has a long history of public interest litigation against cryptocurrency companies. Last month, the office secured $2 billion for defrauded victims from Genesis Global Capital while in December last year, $22 million was obtained from KuCoin, one of the largest cryptocurrency trading platforms.
The precedence of multiple cryptocurrency-related scams is concerning, especially in light of the United States Congress passing ‘Financial Innovation and Technology for the 21st Century Act’ last month. A heavily contested bill, as it was criticized by the Securities and Exchange Commission (SEC) and even the White House for watering down investor protections. According to SEC Chairperson Gary Gensler, the bill would take many cryptocurrencies out of the jurisdiction of the SEC, allowing them to avoid the regulatory body’s stringent compliance requirements.
Also Read:
- US Congress Passes Crypto Regulation Bill, Faces Criticism From SEC and Biden
- Here’s how AI is tackling money laundering through cryptocurrency
- Sam Bankman-Fried gets 25 year jail term over FTX fraud
- India’s views on crypto remain unchanged despite US approval for Bitcoin ETFs: RBI Governor
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