Authorities Charge Crypto-Currency Companies Over Ponzi Fraud Scheme 

By Kate Knibbs on at

The US Securities and Exchange Commission (SEC) has charged controversial cryptocurrency entrepreneur Josh Garza and two of his companies, GAW Miner and ZenMiner, with running a Ponzi scheme to defraud people.

A Ponzi scheme is a fraudulent investment plan where the controller pays out money to its investors from money it gained from new, other investors, rather than from profit earned by the controller of the scheme.

The SEC announced charges yesterday, accusing Garza of using unfamiliar jargon to trick people into buying into a fraud:

“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,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.

This is no surprise to anyone following Garza’s movements through the crypto community. He quickly moved from selling Bitcoin mining hardware and software with GAW Miners and ZenMiners to launching his own alternative cryptocurrency, Paycoin, which was frequently criticised as a pump-and-dump scheme.

One of the most questionable incidents: in a complaint full of charade after charade, the SEC accuses Garza of suckering people into buying 9/11-themed cyrptocurrency tools, claiming that his company wouldn’t profit off of it... which it did:

For example, on or about September 11, 2014, GAW Miners announced the creation of the limited edition “Remember” Hashlet with the logo of “9/11” to commemorate those whose lives were lost in the terrorist attacks of September 11, 2001. Garza announced that GAW Miners would only sell 500 Remember Hashlets, and would donate all of the proceeds (approximately $10,000) to “the 9/11 memorial fund.” He specified that “GAW will in no way be profiting from any sales related to the cause.” After selling approximately 2,290 Remember Hashlets for a total of approximately $48,000, GAW Miners donated only $10,000 to a 9/11 related charity. Garza knew or should have known that GAW Miners actually profited from the sale of Remember Hashlets, contrary to his representations.

The SEC is calling for “injunctive relief”, which means that Garza has to stop swindling, as well as a monetary penalty and a “disgorgement of ill-gotten gains”, which means exactly what it sounds like: it wants to dismantle a fortune built on selling non-existent money-making tools. [SEC]

Image via Shutterstock


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