Yesterday, it was reported that the Securities and Exchange Commission (SEC) had filed fraud charges against NovaTech, and its founders as well as several other executives. The SEC claims that over $650 million was pilfered in the operation, which saw early investors receive payouts from later investors – a classic example of a Ponzi scam. Meanwhile, the principles used the money for other purposes besides their claims of trading for profit.
CI received commentary on the NovaTech case from a former Assistant US Attorney with the DOJ, who specialized in crypto-related scams, Seth Goertz. Now a partner at the law firm of Dorsey & Whitney, Goertz was part of the team that seized crypto worth an estimated $112 million, which was linked to a “pig butchering” operation along with other crypto-related investment scams.
Goertz also coordinated with the District of Arizona’s Darknet and Cryptocurrency Task Force, an attorney-led coalition of federal agencies aimed at disrupting darknet activity and seizing illicitly obtained cryptocurrency.
Goertz said the NovaTech fraud appears to be a textbook affinity group Ponzi scheme.
“The targeting of victims’ religious faith is certainly pernicious, but it is not abnormal, nor is the Ponzi-type movement of funds,” said Goertz. “What’s going to be interesting are the cases against the six NovaTech promoters who were also charged with fraud. What they knew, when they knew it, and what they said to potential investors will be key.”
Goertz said the size of the scheme is noteworthy, wondering if it was really more tied to fiat currency.
“Cases like this also give fuel to the SEC’s adjacent efforts to broadly regulate cryptocurrency,” Goertz explained. “Final thought: if these allegations have teeth, we will almost certainly see a parallel DOJ investigation and/or charges in the relatively near future.”
As of this writing, the US Department of Justice has not revealed a parallel action and criminal charges. The founders of NovaTech may be out of the country, which may be part of the decision-making process, but it would be surprising if criminal charges are not announced shortly.