Bitcoin mining lose SEC Judgment

On June 2, 2017, The Securities and Exchange Commission (SEC) won a final judgment against Connecticut-based bitcoin mining companies GAW Miners LLC and ZenMiner LLC, and their founder Homero Joshua Garza. As a consequence, in addition to a $1 million civil penalty for each defendant, the US District Court for the District of Connecticut has ordered both GAW Miners and ZenMiner to pay, jointly and severally, $10,384,099 in “disgorgement and prejudgment interest.”

The original SEC complaint, which was filed on December 1, 2015, purported that Garza and his companies conducted a Ponzi scheme to obtain “quick riches” and swindle investors.  As per Paul Levenson, director of the SEC’s Boston Regional Office:

“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.”

According to the SEC, from August 2014 to December 2014, Garza and his companies sold $20 million worth of unsupported shares in digital mining contracts they called Hashlets, which supposedly bestowed 10,000 investors with shares of computing power that GAW Miners claimed to own and operate.

However, upon further investigation, the SEC found that since “Garza and his companies sold far more computing power than they owned, they owed investors a daily return that was larger than any actual return they were making on their limited mining operations.”

Investors were gradually paid “returns” from funds Garza and his companies gained from other investors. As a result, many investors failed to recover their full investment and only a few turned a profit.

At the time of publication, GAW Miners and ZenMiner have ceased all business operations and further litigation against Garza by the SEC is pending.

Dan is a Los Angeles-based musician, writer, and veteran passionate about science and technology, current events, human rights, economic impacts, and strategic calculus.
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