Nova Labs is sued by the SEC for alleged securities violations

In two high-profile cases, the intersection between cryptocurrency, law enforcement and regulatory oversight has been brought to light. The United States Securities and Exchange Commission has sued Nova Labs (the creators of the Helium Network) for selling securities that were not registered just days prior to the departure of SEC Chairman Gary Gensler. A cryptocurrency entrepreneur, as well as a former Los Angeles County deputy sheriff, have both pleaded to federal charges including civil rights violations and tax evasion. This case highlights the use of law enforcement to assist criminal activity.

SEC Sues Helium Network’s Creator Nova Labs Just Days Before Gensler Departs

United States Securities and Exchange Commission has sued Nova Labs (the company behind open-source Helium Network), accusing them of selling securities that are not registered. This lawsuit was filed days before SEC Chairman Gary Gensler will step down from his position on January 20. It has given a new twist to SEC’s efforts to crackdown on cryptocurrency companies during Gensler’s controversial tenure.

Nova Labs is accused of illegally selling unregistered investments in the SEC lawsuit filed on January 17. Two offerings are at the heart of the SEC’s lawsuit: the “Hotspots” electronic devices that mine Helium, the cryptocurrency owned by the company.

Nova Labs is also accused of making deceptive claims about its partnerships with large corporations such as Lime, Nestle and Salesforce. The agency asserts that these corporations used Helium’s network or relied upon it. The SEC claims that these statements are unsubstantiated.

Under Gensler’s leadership, the SEC has taken a number of enforcement actions against blockchain firms. This classification is often targeted by the SEC. The SEC, under Gensler, pursued an array of enforcement actions, resulting in a debate about the regulatory clearness and applicability securities laws.

In July 2023, Gensler was involved in one of the biggest cases in his tenure. The SEC sued Ripple and won a partial win for Ripple. Federal court ruled Ripple XRP token was not a security that could be sold programmatically on digital asset exchanges. The SEC appealed the ruling.

SEC leadership shifts

It is interesting that the Nova Labs lawsuit was filed just as the SEC prepares to make a leadership change. Gary Gensler is leaving his position on January 20. He was a controversial figure who had a critical view of cryptocurrencies. The departure of Gary Gensler coincides with the broader shift in Washington, as Donald Trump prepares to start his second term.

Reuters reported on Jan. 15, that the SEC, under its new leadership, may reassess ongoing enforcement actions against crypto companies. According to the report, the SEC could decide not to pursue any litigation that doesn’t involve allegations of fraud. This would signal a possible shift in priorities.

Crypto community’s reaction to this lawsuit has been mixed. The SEC’s critics claim that Nova Labs is a prime example of regulatory overreach and has stifled innovation within the blockchain industry. However, supporters maintain that the enforcement of laws is needed to protect investors against potentially fraudulant or misleading practices.

Nova Labs is yet to respond in detail to these allegations, but it will likely contest them vigorously. The lawsuit’s outcome could have major implications for Helium Network, and the crypto industry in general.

The regulatory climate for cryptocurrency may change with Gensler leaving and Trump taking over. There are reports of an upcoming freeze on enforcement actions, which could mean a softer approach to cases that do not involve fraud-related securities offenses.

The uncertainty around Nova Labs’ lawsuit highlights the difficulties that companies in the blockchain industry continue to have in trying to navigate a regulatory environment which is often unclear. While the industry waits for clarity, this case’s outcome could be a precedent in how tokens and decentralized networks are regulated by the United States.

The SEC lawsuit against Nova Labs is a major chapter in the enforcement efforts of Gary Gensler. The allegations are serious and raise questions regarding the practices of Nova Labs. However, given the impending leadership changes, it is possible that the SEC will reassess its broader approach to cryptocurrency. All eyes will be on the Jan. 20, and any potential changes in the regulatory environment under the new leadership.

The ‘Godfather of Crypto’, a former LA deputy sheriff pleads guilty to federal crimes

A cryptocurrency entrepreneur, as well as a former Los Angeles County Sheriff’s Department deputy, have both admitted to federal crimes including tax evasion, conspiracy and civil rights violations. On Jan. 17, the announcement of plea agreements marks an important development in a criminal case that involves allegations of fraud, corruption and intimidation.

Adam Iza (24), who referred to himself as “crypto-godfather” and founder of Zort, the cryptocurrency trading platform, orchestrated a fraud scheme that involved intimidation, financial fraud and extortion.

Eric Chase Saavedra (41), a former LASD Deputy and task force officer for the US Marshals Service, was a key player in his operations. Saavedra confessed to using his credentials as a law enforcement officer and the resources he had to support Iza’s criminal activities. This included accessing databases and fabricating warrants and sending off-duty deputy enforcers.

In court filings, it is revealed that Iza orchestrated a number of violent acts and coercive actions with the help of Saavedra. In January 2022 Iza attempted to steal a computer containing allegedly over $100,000,000 in cryptocurrency. Saavedra obtained a warrant for a search under false pretenses by claiming that the owner of the laptop was a suspect in an investigation into firearms. Iza used the information Saavedra gave to send armed men to the residence of the target to commit the crime.

When the victim fired an alarm shot, it stopped the robbery. Iza was not deterred and sent the victim video footage of the attempted robbery, which prosecutors deemed an intimidation technique.

Another incident occurred in which LASD officers allegedly forced a victim to transfer $25,000 by holding them at gunpoint. This was alleged to have happened at Iza’s house in August 2021. Iza threatened a second victim with a gun in October. She forced the victim to transfer $127,000.

Saavedra was involved in more than just his role as a police officer. Saavedra & Associates LLC was a security company he operated, and it employed LASD officers who were not on duty. Saavedra reportedly received $100,000 a month from Iza between 2021-2024 in exchange for his round-the clock security services. The prosecution argues that the arrangement blurred lines between state and private resources. This allowed Iza to have a powerful presence during his criminal activities.

Iza’s criminal activity was not limited to intimidation and extortion. He allegedly defrauded Meta Platforms Inc. between 2020 and 2022 of more than $37 million using business accounts and credit lines. This scheme added to Iza’s extensive financial damage.

Iza and Saavedra both admitted that they committed federal tax crimes. Iza failed to pay approximately $6,7 million in federal taxes in 2021. Saavedra did not report income of $373,146 during that same time period.

Face the Consequences

Legal repercussions are serious for Iza Saavedra. Iza faces up to 35-years in prison. She has been held in federal custody by the government since September 20, 2024. Saavedra could be sentenced to up 13 years in prison. He resigned as a member of the LASD. In the next few days, both are expected in Los Angeles federal court for their sentencing.

US Attorney Martin Estrada said that the conduct acknowledged in these plea deals is disturbing and could not be tolerated. I am thankful for Sheriff Robert Luna’s cooperation and that of the Los Angeles County Sheriff’s Department, in helping our office root out corruption.

This case is of greater importance to both law enforcement and the crypto industry. The case is a warning to the cryptocurrency industry about the dangers of unchecked powers in influential hands. It highlights the vulnerabilities which can occur when officials abuse their power for personal gain.

The case reminds us of the importance of integrity and supervision, especially in institutions and industries where accountability and trust are key.