New York Seeks $1.37 Billion from NovaTech Founders in Crypto Pyramid Case
New York Attorney General Letitia James filed a court motion on 23 October 2026 seeking $1.37 billion from NovaTech founders Cynthia and Eddy Petion, after the couple reportedly fled the United States following a default judgment issued against them in August 2025. The case centres on what prosecutors describe as a crypto pyramid scheme that collected over $1.16 billion in digital asset deposits from investors between August 2019 and May 2023. For accounting firms, auditors, and CFOs with clients operating in the digital asset space, the financial trail documented in the AG's filing is a textbook illustration of why on-chain transaction records, third-party custody data, and rigorous AML controls are not optional extras — they are the evidentiary backbone of any enforcement investigation.
What the Court Filing Actually Says
The AG's office is seeking two distinct monetary remedies. The first is $1.13 billion in disgorgement, representing funds that prosecutors allege were illegally obtained. The second is $232.5 million in prejudgment interest, bringing the combined demand to just under $1.37 billion.
The Scale of the Alleged Scheme
According to the filing, CoinPayments records show that investors deposited $1.16 billion worth of cryptocurrency into NovaTech's wallets over roughly four years. Of that total, at least $134.5 million in withdrawals flowed to wallets attributed to the Petions personally, with Cynthia Petion authorising those transfers. By contrast, NovaTech deposited only $25.99 million with B2Broker, the trading platform provider it claimed to use for generating trading returns. Traders lost $18.19 million of that amount. The gap between claimed investment activity and actual trading exposure is central to the prosecution's argument that NovaTech operated a classic Ponzi structure, paying purported profits and recruitment bonuses using incoming deposits rather than genuine trading gains.
How the Promoter Settlements Fit In
Separately from the action against the founders, four promoters connected to NovaTech have agreed to pay nearly $6 million in disgorgement to be returned to victims. All four have been permanently barred from operating in the securities, commodities, and cryptocurrency industries. These settlements signal that the AG's office is pursuing multiple tiers of the distribution network, not just the principals at the top.
Timeline and Background
The New York AG first sued NovaTech and a related company, AWS Mining, in June 2024, alleging both operated illegal pyramid schemes. The complaint at that stage accused the operators of targeting immigrant and religious communities with promises of safe, steady investment returns. Attorney General James stated publicly that victims were told they were making secure investments when they were, in reality, funding a fraudulent structure that robbed them of their savings.
After the Petions failed to respond to the lawsuit, a default judgment was entered in August 2025. The AG's office has since reported that the couple left the country. The October 2026 filing is therefore a quantification motion, putting a precise dollar figure to the damages the court is being asked to order.
Why the Audit Trail Proved Decisive
The evidentiary spine of this case is instructive for any professional advising clients who handle digital asset flows. Prosecutors did not rely on internal NovaTech records. They obtained data from two third-party sources: CoinPayments, which processed deposits into NovaTech's wallets, and B2Broker, which hosted the trading activity NovaTech claimed to be conducting on behalf of investors.
On-Chain and Custodial Records as Evidence
CoinPayments records allowed investigators to reconstruct $1.16 billion in deposits and to trace $134.5 million in outflows to wallets identified as belonging to the founders. The specificity of those figures, down to the individual wallet level, reflects the transparency of public blockchain data when combined with the KYC and transaction records a regulated payment processor is required to maintain. Firms advising clients in the digital asset space need to understand that this same transparency works in both directions: it enables fraud detection, but it also means that any attempt to obscure flows through wallet-hopping or layering leaves a retrievable on-chain record.
The Trading Data Gap
The B2Broker data point is equally significant. NovaTech claimed to be generating returns through active trading. The filing shows a $25.99 million deposit with the trading provider against an exposure that lost $18.19 million, a far cry from the implied scale of returns being distributed to a pool of investors who had deposited $1.16 billion. For auditors, this ratio is a red flag pattern: when purported trading gains distributed to clients are structurally impossible given the verified positions actually held with a trading counterparty, the numbers cannot be reconciled and should trigger immediate escalation.
Accounting and Regulatory Implications for Firms
The NovaTech case raises several practical issues for accounting and compliance professionals serving digital asset clients or conducting due diligence on platforms that handle crypto deposits.
Client Due Diligence and Source of Funds
When a platform presents itself as generating trading returns on pooled crypto deposits, advisers and auditors should expect to see verifiable, independently sourced trading records. Account statements from a named trading counterparty, reconciled against the platform's own ledger, are the minimum. Where a client cannot provide third-party corroboration of the trading activity underpinning reported returns, that is a material gap that any engagement letter should address explicitly. The NovaTech filing demonstrates how forensic investigators approached exactly this reconciliation exercise, and the resulting figures were unambiguous.
Disgorgement and Tax Consequences
The $1.13 billion disgorgement figure is relevant to any future tax analysis if assets are ultimately recovered and distributed to victims. In US tax practice, the treatment of disgorgement receipts and victim restitution payments has its own body of guidance, and firms advising on enforcement outcomes should be alive to the potential tax character of any funds returned. Disgorgement payments made by a defendant are generally not tax-deductible under Internal Revenue Code principles following the Tax Cuts and Jobs Act amendments relating to government fines, though the specific characterisation depends on the nature of the underlying payment and should be assessed case by case.
AML Red Flags in Pooled Crypto Deposit Models
The structure alleged here, large volumes of investor deposits flowing through a single custodial wallet with outflows going directly to principals rather than to verifiable trading accounts, is a pattern that well-designed AML monitoring should surface. For firms that use crypto accounting software to track client digital asset flows, transaction monitoring rules should be calibrated to flag disproportionate outflows to a small number of beneficiary addresses relative to the volume of inbound deposits. The CoinPayments data used by prosecutors was essentially a structured version of exactly that analysis.
Firms advising clients on digital asset compliance may also want to review our earlier coverage of the Richard Heart enforcement case, which raises parallel questions about promoter liability and securities classification in crypto contexts, as well as our piece on White House cybercrime enforcement priorities, which frames the broader federal posture on crypto fraud.
What Happens Next
Because the Petions have reportedly left the US, the AG's ability to enforce a monetary judgment depends heavily on international cooperation frameworks and whether any assets remain within reachable jurisdictions. The $134.5 million in wallet outflows identified in the filing represents a potential target for asset tracing efforts if those wallets can be linked to exchange accounts or custodians that are subject to legal process. Crypto asset tracing in cross-border enforcement is increasingly standard, and the case illustrates the kind of on-chain forensic capability that state attorneys general are now routinely deploying.
The permanent industry bar imposed on the four promoters is also worth noting as a precedent. It extends across securities, commodities, and crypto, reflecting a regulatory posture that treats participation in a crypto pyramid scheme as disqualifying across all related financial industry activities, not just the crypto segment in isolation.
Frequently Asked Questions
What exactly is New York seeking from the NovaTech founders?
The AG's office is seeking $1.13 billion in disgorgement, representing the alleged illegal proceeds, plus $232.5 million in prejudgment interest. The combined total is approximately $1.37 billion.
How did investigators establish the $1.16 billion deposit figure?
Prosecutors relied on transaction records from CoinPayments, the payment processor NovaTech used to receive investor deposits. Those records allowed the AG's office to trace inflows to NovaTech's wallets and outflows to wallets attributed to the founders over the period August 2019 to May 2023.
What happened to the four promoters named in the case?
The four promoters agreed to pay nearly $6 million in disgorgement to be returned to victims and accepted permanent bans from the securities, commodities, and cryptocurrency industries.
What does disgorgement mean in this context, and is it tax-deductible?
Disgorgement is a remedy that requires defendants to hand back profits obtained through illegal conduct, the aim being to remove any financial gain from the wrongdoing rather than to punish. Under US tax law, payments characterised as disgorgement to a government authority are generally not deductible by the payer following the 2017 Tax Cuts and Jobs Act amendments. The precise deductibility treatment depends on the specific nature of the payment and requires case-by-case analysis.
What should accounting firms take away from this case for their own AML and client due diligence procedures?
The key lesson is that third-party corroboration of trading activity is essential when a client platform claims to generate returns from pooled crypto deposits. If reported distributions to investors cannot be reconciled against independently verifiable trading positions, that discrepancy is a material red flag. Firms should also ensure their transaction monitoring is calibrated to detect large outflows from pooled wallets flowing to a small number of beneficiary addresses, the pattern central to this case.
Source: The Block