According to a press release by the SEC, Garza is alleged by the SEC to carry out the fraud through his two Connecticut-based companies GAW Miners and ZenMiner by falsely claiming to produce bitcoin hashing power that GAW did not own. The complaint was filed in the U.S. District Court for the District of Connecticut today.
An excerpt from the SEC charge read:
In reality, GAW Miners and ZenMiner did not own enough computing power for the mining it promised to conduct, so most investors paid for a share of computing power that never existed.
Like any Ponzi scheme, the returns that were paid to some of the early investors “came from proceeds generated from sales to other investors,” the SEC charge alleges.
The full SEC complaint can be found here [PDF].
The charge also elaborates on “Hashlets” that were sold to over 10,000 investors between August 2014 and December 2014. The total worth of the shares sold in the digital mining contract, or a Hashlet totaled over $20 million.
The contract of a Hashlet promised the investor to “control a share of the computing power that GAW Miners claimed to own and operate,” the complaint added.
The charge adds that the two Bitcoin mining companies and Josh Garza conducted a Ponzi scheme that took advantage of the “lure of quick riches from virtual currency to defraud investors.”
The summary of the complaint action added:
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.
The complaint by the SEC also revealed that it is demanding a jury trial.
Images from Shutterstock and Wikimedia.