Homero Joshua Garza, founder of GAW Miners and ZenMiner, has been accused for securities fraud totally worth $19 million. GAW Miners, one of the Defendants, was founded in May 2014 and soon became a leading player in the digital currency industry.
ZenMiner was started in July 2014 as an independent company. However Garza owned and controlled it at all times. Garza must have been perpetuating this deception as he believed GAW Miners wasn’t able to offer cloud-based hosted mining services without alienating its original hardware-purchasing customers.
The Securities and Exchange Commission informs that Garza conducted a Ponzi scheme using the lure of quick riches from virtual currency to defraud investors. Paul G. Levenson, Director of the SEC’s Boston Regional Office said: “As alleged in our complaint, Garza and his companies cloaked their scheme in technological sophistication and jargon, but the fraud was simple at its core: they sold what they did not own, misrepresented what they were selling, and robbed one investor to pay another.”
As a result Garza’s companies have sold more than 10,000 investment contracts (later called “Hashlets”) representing shares in the profits they claimed would be generated from using their purported computing power to ‘mine’ for virtual currency. Indeed Garza sold far more Hashlets worth of computing power than they actually had in their computing centers.
SEC’s complaint announces a number of false and misleading statements that Garza and his GAQ Miners made to actual and potential investors:
- All of the Hashlets of computing power purchased by investors would be polled together to engage in virtual currency mining, and investors’ returns, or “payouts”, would be calculated based on the success of those collective virtual currency mining operations.
- Buying a Hashlet would allow investors to mine virtual currency without the expense and expertise that would be required to purchase and maintain their own virtual currency mining equipment.
- Garza misrepresented the profitability and life-span of Hashlets, the extent of GAW Miners’ mining activities, the way payouts for Hashlets were derived.
The lawsuit asks for Garza to pay back the money that was stolen and to pay civil penalties “due to the egregious nature of defendants’ violations.” The accusation of GAW Miners and ZenMiner can’t be called a sensation.
First of all, it’s not the first time that bitcoin entrepreneurs risk speculating in stocks and shares. Let’s just look back on the story of Mak Karpeles, CEO of Mt. Gox. Secondly, there has been active speculation among the Bitcoin community that GAW may be a scam or at least that it could be engaged in illegal behavior.