Crypto Fraud Fallout: Former LPL Financial Broker Ordered to Pay $1.4 Million Over Fraudulent Crypto Schemes

The swift development of the digital currency market has birthed significant opportunities, but it has also created a vacuum for misconduct. A recent enforcement action by the Arizona Corporation Commission illustrates the devastating losses investors face when financial professionals promote high-risk, fraudulent crypto-related investments without proper disclosure or authorization.

According to regulatory filings, a former LPL Financial-registered broker has been ordered to pay $1.4 million in restitution, along with substantial administrative penalties. The order follows allegations that the broker solicited clients to invest in two cryptocurrency programs that federal authorities have since labeled as massive fraudulent ventures.

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The Allegations: Misleading Safety and Undisclosed Risks

State regulators found that between 2021 and 2023, the broker encouraged at least 16 investors to move nearly $1.4 million into crypto-asset programs tied to NovaTech and HyperFund.

The investigation revealed that investors were allegedly told their funds were “safe, secure, and accessible,” with promises that their principal would grow consistently over time. However, authorities determined that critical information was withheld:

• Failure to Disclose Regulatory Warnings: The broker allegedly failed to inform clients of existing regulatory warnings along with legal actions against these entities.
• SEC Fraud Designations: The Securities and Exchange Commission (SEC) has since alleged that both NovaTech and HyperFund were fraudulent investment schemes.
• Pyramid Scheme Ties: HyperFund has been linked to a global crypto pyramid scheme that allegedly raised over $1.7 billion, while NovaTech is accused of defrauding investors of more than $650 million worldwide.

The Regulatory Reality: Restitution vs. Recovery

While the Arizona Corporation Commission’s restitution order is a victory for regulatory supervision, the unfortunate reality is that investors often struggle to collect directly from sanctioned individuals who may no longer have the assets to pay.

For many investors, meaningful financial recovery relies on pursuing civil claims against the “gatekeepers” and institutions involved, such as:

• Broker-Dealers and Investment Firms: Firms have a legal duty to supervise their representatives. If a firm fails to detect or prevent “selling away” (selling investments not approved by the firm), it may be held liable for the resulting losses.
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• Financial Advisors: Advisors who make unsuitable recommendations or provide misleading information violate their fiduciary or “best interest” duties.

The Bigger Picture: Protections Still Apply to Crypto

This case serves as a reminder that while cryptocurrency operates on decentralized technology, the financial professionals who sell it are not exempt from the law. Disclosure obligations, suitability standards, and anti-fraud rules apply regardless of whether the underlying asset is a stock, a bond, or a digital token.

At Sonn Law Group, we closely monitor crypto-related enforcement actions. These cases often reveal a pattern of misconduct—including misrepresentations and supervisory failures—that form the legal foundation for investor recovery claims.

Recover Your Crypto Investment Losses

If you invested in NovaTech, HyperFund, or other crypto-related schemes through a financial advisor or broker, you may have legal grounds to recover your losses.