U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23415 / December 1, 2015
Securities and Exchange Commission v. Homero Joshua Garza, Civil Action No. 3:15-cv-01760 (D. Conn., Complaint filed Dec. 1, 2015)
SEC Charges Bitcoin Mining Companies
The Securities and Exchange Commission today charged two Bitcoin mining companies and their founder with conducting a Ponzi scheme that used the lure of quick riches from virtual currency to defraud investors.
According to the SEC's complaint filed in federal court in Connecticut, "mining" for Bitcoin or other virtual currencies 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 computers to solve an equation is awarded new units of that virtual currency.
The SEC alleges that Homero Joshua Garza perpetrated the fraud through his Connecticut-based companies GAW Miners and ZenMiner by purporting to offer shares of a digital Bitcoin mining operation. 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. Returns paid to some investors came from proceeds generated from sales to other investors.
According to the SEC's complaint:
The SEC's complaint charges Garza, GAW Miners, and ZenMiner with violating Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act); GAW Miners and Garza with violating Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; and ZenMiner with violating Sections 17(a)(1) and (3) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder. The SEC's complaint seeks permanent injunctive relief as well as the disgorgement of ill-gotten gains plus prejudgment interest and penalties.
The SEC's investigation was conducted by Gretchen Lundgren, Kathleen Shields, Trevor Donelan, and Michele T. Perillo of the Boston office, with assistance from Alex Lefferts of the Enforcement Division's Center for Risk and Quantitative Analytics. The SEC's litigation is being handled by Ms. Shields and Ms. Lundgren.