Homero Joshua Garza is being sued by the Securities and Exchange Commission, following fraud allegation.
GAW Miners and ZenMiner’s founder Homero Joshua Garza is being sued by the SEC, following a civil complaint alleging that the Bitcoin mining companies run by Garza and his brother, Carlos Garza, committed $19 million worth of fraud in a Ponzi scheme.
Bitcoin has quite a reputation among non-purchasers as being the currency of shady goings-on, and a new scheme to let investors mine for Bitcoin isn’t going to help that reputation any. A US dealer attempted to create an investment plan that would allow participants to “mine” Bitcoin, but the government has determined he misrepresented the amount of mining that could take place with the computer setup he was running.
For those not in the know, Bitcoin are “mined” just like any other substance that can back a currency. Instead of mining gold to back paper currency, Bitcoin is digitally mined through ongoing transactions. According to Investopedia, it’s as risky as any other precious element mining: “Bitcoin mining serves to both add transactions to the block chain and to release new Bitcoin. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The first participant who solves the puzzle gets to place the next block on the block chain and claim the rewards. The rewards incentivize mining and include both the transaction fees (paid to the miner in the form of Bitcoin) as well as the newly released Bitcoin.”
Essentially, the investors in this scam were “renting” a share of the technology required to verify transactions and eventually earn a few Bitcoin in the process. However, authorities have determined that not only did the hardware not even come close to being sufficient, but that the scammer knew it.
In this investment scam, Homero Joshua Garza used money from new investors to make payoffs to previous investors, essentially running a ponzi scheme. He took more than $20 million in the process, and his investors reportedly did not recover their initial investments. The Securities Exchange Commission has cited that Garza wasn’t running anything close enough to the amount of transactional power to mine the Bitcoin adequately to produce a return on the investment.
While the SEC has determined the fine Garza must pay in damages, he is now facing a criminal trial for the fraud he committed in setting up two bogus investment companies.