What if you woke up one day and decided to start your own pyramid scheme? Here is what you need to do.

The first step in the process is to recruit a bunch of members to invest in the scheme. Let’s say it is a cryptocurrency scheme or some other product. You take some of their money and instruct them to recruit new members for the scheme. Members from step 1 go and recruit new members. You give some money to members from step 1 for their work and pocket the rest. Then, folks from step 2 find new members, get new money, you give them some and pocket the rest. The process goes on until something goes wrong, which typically does.

Many multi-level marketing schemes resemble pyramid schemes. But, they have one difference: there is a product that is being sold. Be it cosmetics or nutritional supplements. But, in pyramid schemes, there is no product involved. People who get in early and are able to recruit most members make the most money. Conversely, those who are late to the party stand to lose everything.

NovaTech FX: Biggest Alleged Pyramid Scam of 2024

To make a pyramid scheme successful, it is key to have a fake product that can be promoted. In the case of NovaTech FX Ltd, they allegedly chose fake cryptocurrency trading. NovaTech likely stands as one of the largest crypto pyramid schemes of 2024. They raised over $650 million from over 200K investors according to the SEC complaint on NovaTech filed on August 12, 2024.

NovaTech was founded and managed by Cynthia and Eddy Petion. The couple operated the company from 2019 to 2023. Their idea was to get funds from others and make money by trading with these funds on crypto and forex markets.

But, there was barely any trading happening according to the SEC complaint. The complaint alleges that most funds were used to pay commissions to its promoters, while a lot of it was misappropriated by the couple. In the end, NovaTech collapsed and most investors lost their money.

NovaTech Pyramid Scheme Red Flags

Before its collapse, there were a high number of red flags, though. Cynthia Petion branded herself as the “Reverend CEO” and used religious appeals in her investment pitches. Fine, there is nothing wrong with that.

Red Flag #1: Consistently High Promised Returns

But, what was wrong was the promised returns in those pitches. NovaTech said they were in the realm of 2%-3% each week according to the SEC compaint. That is huge. 2%-3% weekly compounds into hundreds of percent return over years. I don’t think even Warren Buffett was able to pull this off on a consistent basis. When it sounds too good to be true, you know, it is probably not true.

The SEC attempted to rebuild trading activity of NovaTech in the absence of records from the company. The complaint states that NovaTech appears to have traded only a small fraction of investors’ funds. Instead, the company likely incurred trading losses for the most part. Here is a relevant excerpt:

“NovaTech failed to generate anywhere near the returns it represented to investors through the small percentage of crypto assets that were traded. To the contrary, records from NovaTech’s known trading platforms show that traders and accounts associated with NovaTech lost approximately $18 million in trading these assets during the Relevant Period.”

Source: SEC Complaint of 8/12/2024

Red Flag #2: “Registered Hedge Fund”

The second red flag with NovaTech was how they promoted themselves. In their pitch materials, they often used the word “registered hedge fund”. But, allegedly, they were never registered with the SEC or any other financial regulatory body in the US.

Their principal office was registered in St. Vincent and the Grenadines. This is a known offshore tax haven. The government in this country does not regulate or license forex brokers, for instance. So, in the case of NovaTech, their claims of being a registered hedge fund in the US or maybe even anywhere where they sold their products were allegedly not true.

Red Flag #3: History of Involvement in Other Crypto Schemes

The third red flag had to do with the history of Cynthia and Eddy Petion. Before forming NovaTech, they were involved with another alleged crypto mining scheme called AWS Mining PTY.

The Petions were the top promoters of AWS Mining in the US before 2018. In 2018, the state of Texas issued a cease and desist order to AWS Mining. Texas demanded the company to stop offering investment products there due to violation of securities laws.

After AWS Mining collapsed, the Petions quickly distanced themselves from AWS Mining according to the SEC complaint. Instead, they chose to blame AWS Mining’s founders for everything. The ironic thing is that they started NovaTech right after that engaging in similar scheme. Here is a relevant excerpt from the compaint:

“The Petions began to publicly distance themselves from AWS as it collapsed. They blamed AWS’s collapse on its principals and claimed that they, too, were victims of the alleged scheme (even though Cynthia Petion privately acknowledged that she made over $3 million in connection with AWS). The Petions then pivoted to creating and running their own MLM crypto investment scheme—“NovaTech”—which Cynthia Petion told prospective investors was created as a way for former AWS investors to recoup losses suffered when AWS collapsed. To help ensure NovaTech’s success, the Petions lured other top AWS promoters to promote NovaTech to their respective followings of investors.”

Source: SEC Complaint of 8/12/2024

Red Flag #4: Pending Lawsuits, Past Bankruptcy

Other red flags also were there, but required some digging and research. Specifically, the Petions filed for Chapter 7 bankruptcy in 2011. Also, either Cynthia or her husband were involved in lawsuits that alleged failure to repay loans.

Anyone can go bankrupt or get involved in financial lawsuits. But, it is a different matter if you are selling investment products to the public in the US. If you are doing so, you must disclose these matters to investors, which Petions failed to do.

Red Flag #5: Fraud Warnings from Authorities

Finally, more evident red flags started piling up on NovaTech’s plate around 2022. First was from the Central Bank of Russia. In August of 2022, Russian authorities issued a securities fraud warning to NovaTech.

Next were regulatory organizations from Canada and the US. In October of 2022, the company received a fraud warning from the British Columbia Securities Commission (BCSC). The BCSC alleged that NovaTech was doing unregistered investment trading and distribution.

Then, came the warnings from California and Wisconsin alleging similar issues. Of course, NovaTech ignored or brushed these warnings aside.

Red Flag #6: Problems with Money Withdrawing

At the same time, NovaTech’s customers began experiencing problems with funds withdrawals in 2022.

This somewhat culminated with the blanket 60-day ban on any withdrawals in early 2023. Probably, many people woke up to the possibility of losing their money and ran for the exit. At the end of March of 2023, NovaTech made an announcement to the back office regarding withdrawals. Withdrawals were allowed, but with severe restrictions to their frequency and amount.

Things did not last long from there. On May 11, 2023, NovaTech halted its US operations, disabling its website. After that, no one was able to withdraw anything. At the end of the day, many investors were left with massive losses that will not be easy to recover.

SEC Complaint Implicates Other Top Promoters

The ironic thing is that the SEC complaint also implicates many other members of NovaTech. These people promoted the company to others despite knowing about many red flags. Here is a relevant excerpt from the SEC complaint. It is a direct quote from Marsha Hadley who was one of the top promoters of NovaTech. In her 2022 presentation to prospective investors of NovaTech, she says:

“Those of you that’s in the stock market, stocks were going down, down, down, like crazy. Cryptocurrency was going down, down, down like crazy. And then as we look at it, we still came out on top. NovaTech, we had a 1.85 percent profit? Okay. Sign me up, all day, every day.”

Source: SEC Complaint of 8/12/2024

Prasing NovaTech, she continues:

“…wait a second, so we’re not doing any trading at all; we don’t have to have any knowledge of cryptocurrency or trading. The experts is doing everything. We get paid every Friday. Who would want to cancel?”

Source: SEC Complaint of 8/12/2024

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Red flags all over the place. But, who wants to cancel? Probably, not the one who stands to benefit most from all this.