SEC Charges GAW Miners CEO Josh Garza with Securities Fraud
The US Securities and Exchange Commission has charged former GAW Miners CEO Josh Garza with the fraudulent sale of unlicensed securities and the operation of a Ponzi scheme.
The complaint, filed today in the US District Court for the District of Connecticut, focuses largely on the sale of Hashlets, the “virtual miners” sold by GAW Miners through its cloud mining site, ZenCloud. According to the SEC, Garza and GAW Miners knowingly misrepresented the nature of Hashlets, their proclaimed profitability and the manner in which income was sourced.
The agency, which sued Garza’s brother Carlos after he refused to testify during its investigation, wrote in the indictment:
“Defendants used the lure of quick riches from a twenty-first century payment system known as virtual currency to defraud investors. Though cloaked in technological sophistication and jargon, defendants’ fraud was simple at its core – defendants sold what they did not own, and misrepresented the nature of what they were selling.”
According to the SEC, GAW Miners’ sale of Hashlets was fraudulent at its core due to vastly insufficient mining power owned by the company and operated at its data centers. Emails leaked earlier this year show discussions among GAW staff, including Garza, regarding mining power shortfalls and efforts to expand capacity amid continuing Hashlet sales.
The SEC wrote:
“Defendants’ Hashlet sales had many of the hallmarks of a Ponzi scheme. Because defendants sold far more computing power than they owned and dedicated to virtual currency mining, they owed investors a daily return that was larger than any actual return they were making on their limited mining operations.”
Elsewhere in the complaint, the SEC drew attention to the false nature of GAW’s controlling stake in ZenMiner, the latter of which at the time was represented as a separate entity.
Echoing prior claims by former GAW employee Eric Capuano, the SEC said that “this statement was false; no such transaction occurred because Garza had always owned and controlled ZenMiner.”
The indictment comes months after GAW Miners crumbled amid growing controversy over its mining operations and promises that it would honor a $20 price for its alternative cryptocurrency, paycoin. Subsequent staff exits and email leaks accelerated the collapse of GAW, which in the months since has been the target of several civil lawsuits that seek to recoup losses.
The agency is seeking disgorgement from Garza of the ill-gotten gains derived from the GAW Miners scheme as well as interest in civil damages.
The SEC is seeking a jury trial.
The full indictment can be found below:
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