On August 12, 2024, the Securities and Exchange Commission (“SEC”) filed suit against NovaTech LTD, its owners, and six top promoters. The SEC alleges that the owners “operated a fraudulent crypto trading investment and pyramid scheme primarily through NovaTech . . . . [The owners] used a multi-level marketing (“MLM”) structure to raise crypto assets worth more than $650 million from over 200,000 investors in the United States and abroad.”

The suit has been touted within both crypto and MLM circles as appropriate regulatory action, assuming the SEC’s allegations to be true.  

Both crypto and MLM have been plagued with generalities due to the actions of bad actors in their respective spaces as well as those who have sought to merge the two together.

It’s no mystery that I’m bullish on the long-term potential of crypto and MLM. But both industries need to be able to have an open and honest conversation to ensure viability.

Companies and leaders need to be on the same page, especially in MLM circles. If they aren’t, ruin can follow for all involved.

According to the SEC in the NovaTech complaint, “[the Promoter Defendants] were instrumental in offering, marketing, and distributing the NovaTech investment. The Promoter Defendants held themselves out as “leaders” and rose to the highest ranks of NovaTech’s MLM program.”

The SEC is arguing here that not only were the owners committing a fraud, but top leaders that held themselves out as experts and should have known better, or perhaps did know better, continued to promote the fraud. Too often this is the case. The SEC continued,

“Certain Promoter Defendants . . . became aware of actions against NovaTech by regulators in the United States and Canada, investors experiencing withdrawal delays, NovaTech suspending withdrawals, and other red flags that raised questions about the legitimacy of NovaTech and the legality of its offering and selling activities. Nevertheless, these Promoter Defendants continued to promote NovaTech, recruit investors, and operate their MLM networks in face of these red flags. They also downplayed to prospective investors and downline promoters.”

In short, putting your head in the sand as a leader in any company will not save you. As a distributor, you are a small business owner. The responsibilities of such are inherently extended to you. You have an obligation to understand the laws and regulations that surround your business.

Ignoring the warning signs not only endangers your business but also undermines the trust and integrity of the entire industry. Leaders must prioritize ethical practices and compliance with regulatory standards, ensuring that they are not just building a business, but also contributing to the long-term stability and credibility of the industry as a whole. The consequences of neglecting these responsibilities can be far-reaching, affecting not just individual reputations, but the future of the industry itself. Bad actors create bad tastes. Industry leaders need to take their heads out of the sand and truly lead.

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