Last week, the U.S. Securities and Exchange Commission (SEC) announced that it filed a claim with the U.S. District Court against Carlos Garza, former salesman for bitcoin mining firm GAW Miners, for failure to provide testimony.
The Securities and Exchange Commission announced that on August 14, 2015, it filed a subpoena enforcement action in the U.S. District Court for the District of Massachusetts against Carlos R. Garza (“Garza”). According to the application and supporting papers, the SEC is investigating whether GAW Miners, LLC, and various individuals and entities acting in association with it, have violated the anti-fraud or other provisions of the federal securities laws in connection with GAW Miners’ sale of shares in the profits to be derived from its purported bitcoin mining operations and its sales of rights relating to a new type of virtual currency that it created.
In January 2015, the SEC began investigating whether the company’s CEO Josh Garza and other people or organizations working with GAW Miners violated the federal securities laws via sales of its products.
In July, the agency served Garza with a subpoena that required his testimony at court. According to the application, Garza allegedly had knowledge of the firm’s operations and potential misrepresentations to buyers who purchased its cryptocurrency and mining rigs. Besides, the SEC claimed that Garza has information that may be helpful in finding bitcoins and other digital currency that GAW Miners received as payment.
The brother of GAW Miners CEO was required to appear at the Commission’s offices on August 12, 2015. However, the court papers say that Garza declined to give any testimony and refused to answer the queries of the agency without presence of a lawyer. He also told the court that he lacks clear understanding of securities law.
There have been discussions in the bitcoin community that the company could be involved in illegal activities.
In April, GAW Miners faced a lawsuit from a Mississippi Power Company (MPC), which accused the company for not paying about $350,000 for the delivered services during a few months.
In 2014, MPC entered into a contract with GAW Miners to provide power in a way that required the electric utility to acquire certain transformers and spend money on installing it. The case finished a few days ago with a judgment by default against GAW Miners as they were absent at court.
GAW Miners first entered the bitcoin sector a year ago by starting sales of bitcoin mining rigs. The company has recently developed its own cryptocurrency, called Paycoin. GAW Miners also operates its own cloud-based mining service ZenMiner, wallet service Paybase and an online discussion platform dubbed HashTalk.
The agency also accused the company of undertaking “fraudulent conduct in the sales of securities” in relation to the sale of Paycoin. Following the start of the SEC investigation in January, the company launched Paycoin Honor Program, which allowed the owners of Paycoin to sell back the currency at a cost of $20. However, some users noted they had difficulties in withdrawing their money from the Paybase system.
The SEC is also investigating whether the company sold more computing power than it had and whether it owed money to investors. The agency is still carrying out an investigation and has not yet confirmed the violation of the securities laws.