Josh Garza, CEO of GAW Miners, paycoin, charged with securities fraud.

[entertheabyss]

https://www.cryptocoinsnews.com/sec-charges-josh-garza-with-securities-fraud-alleges-bitcoin-ponzi-scheme/
http://www.scribd.com/doc/291829693/SEC-Complaint

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT  ___________________________________________ ) SECURITIES AND EXCHANGE COMMISSION, ) ) Plaintiff, ) ) v. ) Case No. ) HOMERO JOSHUA GARZA, ) GAW MINERS, LLC, and ) ZENMINER, LLC (d/b/a ZEN CLOUD), ) JURY TRIAL DEMANDED ) Defendants. )  ___________________________________________ )
COMPLAINT
 Plaintiff United States Securities and Exchange Commission (“the Commission”) alleges the following against Defendants Homero Joshua Garza (“Garza”), GAW Miners, LLC (“GAW Miners”), and ZenMiner, LLC (d/b/a ZenCloud) (“ZenMiner”), and hereby demands a jury trial:
SUMMARY OF THE ACTION
 1.
 
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. 2.
 
From approximately August 2014 through December 2014, defendants sold – to over 10,000 investors – investment contracts representing shares in the profits they claimed would be generated from using their purported computing power to “mine” for virtual currency. “Mining” for virtual currency means applying computer power to try to solve complex equations that verify a group of transactions in that virtual currency. The first computer (or collection of
Case 3:15-cv-01760 Document 1 Filed 12/01/15 Page 1 of 23
 
 2 computers) to solve such an equation is awarded new units of that virtual currency. This process is known as “mining,” and the computer equipment used in this process, and the humans who own it, are known as “miners.” 3.
 
Defendants sold shares in the returns from their purported mining operations, via investment contracts that they named “Hashlets.” Hashlet contracts entitled their purchasers to a share of the profits from defendants’ purported “hashing power,” or the computing power (measured in megahash per second), that defendants purportedly devoted to virtual currency mining. In reality, defendants sold far more Hashlets worth of computing power than they actually had in their computing centers. There was no computer equipment to back up the vast majority of Hashlets that defendants sold. 4.
 
Defendants earned about $19 million in revenue from their sales of Hashlets. 5.
 
Defendants Garza and GAW Miners made many false and misleading statements about GAW Miners’ virtual currency mining operations to potential and actual investors. For example, they misrepresented: a.
 
that all of the Hashlets of computing power purchased by investors would be  pooled together to engage in virtual currency mining, and that investors’ returns, or “payouts,” would be calculated based on the success of those collective virtual currency mining operations;  b.
 
that buying a Hashlet would allow investors to mine virtual currency without the expense and expertise that would be required to purchase and maintain their own virtual currency mining equipment; c.
 
the profitability and life-span of Hashlets; d.
 
the extent of GAW Miners’ mining activities; and how the payouts for Hashlets were derived. Garza and GAW Miners knew that each of these statements was false at the time it was made. 6.
 
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. 7.
 
Through the activities alleged in this Complaint, defendants have engaged in fraud in connection with the purchase or sale of securities, in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and various subparts of Rule 10b-5 thereunder; and fraud in the offer or sale of securities, in violation of various subparts of Section 17(a) of the Securities Act of 1933 (“Securities Act”). Defendants have also engaged in the offer and sale of unregistered securities, in violation of Sections 5(a) and 5(c) of the Securities Act. 8.
 
Based on these violations, the Commission seeks: a.
 
the entry of a permanent injunction prohibiting defendants from further violations of the relevant provisions of the federal securities laws;  b.
 
disgorgement of defendants’ ill-gotten gains, plus pre-judgment interest; and c.
 
the imposition of civil penalties due to the egregious nature of defendants’ violations...

can't say you didn't see it coming.

[POM]

Bout time.

[Spoetnik]

I like this !

surprised ? LOL

OP..

[box0214]

can anyone give a short summary of what happen exactly?

[peonminer]

"Hey! I fart rainbow colored unicorns! Take a look at these cloud mining contracts! Worth every penny and will ALWAYS be profitable and NEVER go out of usability range. Wait, look over here! Wait, look over here! I mean, have some PayCon! I mean PayCoin! When the XPY store opens we're partnering with Amazon and giving you all $20 per XPY! FKING JKING YOU LAWLLLZZZ YOU GAIZ R PAYCON, I MEAN PAICOAIN NOW. LULLZZZ FUCK OFF WHILE I DUMP MY SHIT COIN FROM $5 TO .02 CENTS! LULLLLLLLLLLLLLLLLLLLLLL U GOT PAYCOINED!"

SEC did not like that. $20 million in stolen funds. He's going to be someone's bitch in prison.

[box0214]

im curious but how does this compare to other public figures that has raised money for their projects like ethereum and bitshares? aren't they in the similar boat with a risk of getting in trouble with the SEC? now i can understand why some coin founders would want to stay anonymous or just disappear after creating the coin.

[entertheabyss]

im curious but how does this compare to other public figures that has raised money for their projects like ethereum and bitshares? aren't they in the similar boat with a risk of getting in trouble with the SEC? now i can understand why some coin founders would want to stay anonymous or just disappear after creating the coin.

this lawsuit is about his cloud mining ponzi scheme, they havent even started with paycon indictment (yet).

[tokeweed]

Isn't Cryptsy highly involved with Paycoin?  Could this be one reason why they're having insolvency problems (allegedly)?

Are they planning an exit and making a run for it?

[Come-from-Beyond]

im curious but how does this compare to other public figures that has raised money for their projects like ethereum and bitshares? aren't they in the similar boat with a risk of getting in trouble with the SEC? now i can understand why some coin founders would want to stay anonymous or just disappear after creating the coin.

These coins were issued under other jurisdictions. Smart guys stay away from the USA.

[entertheabyss]

Isn't Cryptsy highly involved with Paycoin?  Could this be one reason why they're having insolvency problems (allegedly)?

Are they planning an exit and making a run for it?

http://coinfire.io/2015/10/04/federal-investigations-of-cryptsy-underway/
http://www.coinbuzz.com/2015/04/26/cryptocurrency-exchange-cryptsy-now-involved-in-gaw-scandal/
http://cointelegraph.com/news/115384/cryptsy-we-have-never-been-investigated-for-anything

its all speculation this point but it is safe to say cryptsy is balls deep in shit and it seems to only be going south from here.

[Este Nuno]

I really want to see them go after him for Paycoin too. I hope this Hashlet case is just the first step.

[iGotSpots]

Cryptsy knew 100% that hashlets were fake long before getting involved. This is not opinion, it is fact. I was informed of this by those is a high position there who, for now, will stay unnamed. This was long before PayCoin was even listed there. My disdain for the shitty people (as people) working there makes this an even sweeter moment because I know exactly what will happen next  

I tried telling you guys this literally two years ago, called this exact outcome, and was called a liar and troll. Maybe next time you will believe when I say something

[peonminer]

Cryptsy knew 100% that hashlets were fake long before getting involved. This is not opinion, it is fact. I was informed of this by those is a high position there who, for now, will stay unnamed. This was long before PayCoin was even listed there. My disdain for the shitty people (as people) working there makes this an even sweeter moment because I know exactly what will happen next  

I tried telling you guys this literally two years ago, called this exact outcome, and was called a liar and troll. Maybe next time you will believe when I say something

Go away troll! Garza is going to give us $20 per XPY when he gets out of prison! He's going to hide all of his millions in his gaping *expletive* after he becomes Green Mile's next biggest fanboy.

[stealth923]

iCEBreaker and his Hashfast scam is hopefully next.

Finally justice is served.

[entertheabyss]

Cryptsy knew 100% that hashlets were fake long before getting involved. This is not opinion, it is fact. I was informed of this by those is a high position there who, for now, will stay unnamed. This was long before PayCoin was even listed there. My disdain for the shitty people (as people) working there makes this an even sweeter moment because I know exactly what will happen next  

I tried telling you guys this literally two years ago, called this exact outcome, and was called a liar and troll. Maybe next time you will believe when I say something

Go away troll! Garza is going to give us $20 per XPY when he gets out of prison! He's going to hide all of his millions in his gaping *expletive* after he becomes Green Mile's next biggest fanboy.

that's really the beauty of cryptocoins, you can put 20million dollars of bitcoin on a tumbdrive and shove it up your ass. No other monitary system lets you store so much value in one rectum

course you got to deal with the volatility. i cant imagine many people can handle these massive swings in value, without busting a blood vessel in the lining or something .

[DrkLvr_]

Cryptsy knew 100% that hashlets were fake long before getting involved. This is not opinion, it is fact. I was informed of this by those is a high position there who, for now, will stay unnamed. This was long before PayCoin was even listed there. My disdain for the shitty people (as people) working there makes this an even sweeter moment because I know exactly what will happen next  

I tried telling you guys this literally two years ago, called this exact outcome, and was called a liar and troll. Maybe next time you will believe when I say something

Scammers recognize their own kind

[Nxtblg]

can't say you didn't see it coming.

And they were so quick at putting a stop to him.

(Actually, I shouldn't knock 'em; that's the speed at which they roll. It just seems funny because of how fast things move here. How many folks here now don't even know what Paycoin was?)

[CoinHoarder]

I knew something was up with them early on when they were selling Gridseed miners, but I didn't voice my concerns because I had no proof and I was running a competing business so I thought it would look like FUD. I only voiced those concerns with my business partner. They were offering free lifetime hosting for all Gridseed purchases. This is how I knew they were running some sort of scheme. Since I was in the same business I knew the costs of hosting hundreds to thousands of Gridseeds and it didn't make sense they were able to do this for free considering the margins involved in the sale of equipment. Naturally everyone bought from them and not my business so I quickly went out of business due to their scam. I am glad to see them get what was coming to them.

Paycoin was an utter joke as well.. promising to buy back coins for X amount of dollars was a hilariously outrageous proposition. I can't believe anyone actually believed that claim.

[iGotSpots]

I knew something was up with them early on when they were selling Gridseed miners, but I didn't voice my concerns because I had no proof and I was running a competing business so I thought it would look like FUD. I only voiced those concerns with my business partner. They were offering free lifetime hosting for all Gridseed purchases. This is how I knew they were running some sort of scheme. Since I was in the same business I knew the costs of hosting hundreds to thousands of Gridseeds and it didn't make sense they were able to do this for free considering the margins involved in the sale of equipment. Naturally everyone bought from them and not my business so I quickly went out of business due to their scam. I am glad to see them get what was coming to them.

Paycoin was an utter joke as well.. promising to buy back coins for X amount of dollars was a hilariously outrageous proposition. I can't believe anyone actually believed that claim.

He did that easily by just not paying the bill

http://ia600507.us.archive.org/17/items/gov.uscourts.mssd.88839/gov.uscourts.mssd.88839.docket.html

[eddie13]

. He's going to be someone's bitch in prison.

Boy you sure got a pretty mouth, cmeeerr..