It was only a matter of time until the US Securities and Exchange Commission filed official charged Bitcoin mining companies for fraudulent behavior. Both GAW Miners and ZenMiner have been officially indicted, as these two Bitcoin mining “companies” have been charged with conducting a Ponzi scheme to defraud investors.
GAW Miners and ZenMiner Officially Deemed Ponzis
The complaint by the SEC has been filed in federal court in Connecticut, and not only targets the two companies, but their founder Joshua Garza as well. Bitcoin community members from all over the world had been waiting in anticipation for this announcement, as many people lost digital currency when these two Ponzi schemes came around.
According to the SEG, Homero Joshua Garza perpetrated Ponzi scheme fraud through both GAW Miners and ZenMiner, as he offered shares of a digital Bitcoin mining operation. However, there was never enough computing power present to mine the promised amounts of Bitcoin, and all of the “payouts” were coming from other people’s deposits.
Most of the investors in GAW Miners and ZenMiner paid for a share of a mining operation that never even existed in the first place. While it was clear from the start that something was up with both companies, a lot of Bitcoin community members got swept up in the hype regarding both companies and learned their lesson the hard way.
“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.” – SEC’s Boston Regional office Director Paul G. Levenson stated in an official press release.
Joshua Garza has been running GAW Miners and ZenMiner from August 2014 to December 2014, and a total of US$20 m worth of Bitcoin mining shares were sold during the process. Over 10,000 investors purchased the “Hashlets”, which were supposed to be “always profitable and never obsolete.”
However, as neither company had any major computing power to speak of, investors were misled to believe they were sharing in Bitcoin mining revenue. It didn’t take long until investors were owed more money than was at hand, and new signups stalled shortly after that. Most investors never recover the full amount of their investment, and only a handful of “early adopters” made an actual profit.
It will be interesting to see how this scenario plays out over the coming weeks. For now, the SEC is only seeking permanent injunctive relief and disgorgement of ill-gotten gains, plus prejudgment interest and penalties. That is, assuming they can locate Joshua Garza first, as no one knows where he is right now.
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