On Wednesday, the Securities and Exchange Commission sued the founder of a now-shuttered Bitcoin mining company, alleging that it committed $19 million worth of fraud in a Ponzi scheme.
According to the SEC’s civil complaint, Homero Joshua Garza and his companies, GAW Miners and ZenMiner, sold more than 10,000 “investment contracts representing shares in the profits they claimed would be generated from using their purported computing power to ‘mine’ for virtual currency.”
Between August and December 2014, the companies sold $19 million worth of these contracts, dubbed “Hashlets.”
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. Instead, investors were simply paid back gradually over time, as “returns,” the money that they, and others, had invested. As a result, some investors’ funds were used to make payments to other investors. Most Hashlet investors never recovered the full amount of their investments, and few made a profit.
GAW Miners and Garza made three basic types of misrepresentations to Hashlet investors.…