Josh Garza, the CEO of the now-defunct cryptocurrency mining firm GAW Miners, has been sentenced to 21 months in jail just after pleading responsible to a wire fraud charge.
Garza was also provided 6 months home confinement as aspect of a 3-calendar year probationary period pursuing launch.
Thursday’s sentencing caps a years-extended saga that began in 2014, with allegations that GAW was functioning as a Ponzi scheme by advertising more cryptocurrency mining processing electric power than the business actually possessed.
It also marks a summary of kinds for an early effort by the U.S. govt to police the crypto place, arguably placing the stage for some of the enforcement actions and lawsuits filed in the past calendar year and a 50 percent from a slew of alleged scammers.
The first allegations of fraud manufactured from GAW – vociferously denied by Garza and other supporters at the time – in the end proved to be genuine in the wake of the firm’s 2015 collapse and subsequent lawsuits initiated by the U.S. Securities and Exchange Fee (SEC) and, later, the Justice Division.
Interior firm emails leaked amidst GAW’s collapse also included revelations about paycoin, its failed cryptocurrency project that was pitched as having a rate “flooring” at $20, as nicely as affirmation that the firm was remaining investigated by the SEC.
Paycoin would later feature in the Justice Department’s lawsuit from Garza, with the SEC averting that component of GAW’s operations in its concentrate on the so-termed “hashlets,” which the firm pitched as “digital miners” that the U.S. regulator later considered a protection.
Garza pleaded responsible in July of final calendar year in the Justice Department’s situation, however the SEC go well with continues to be ongoing, in accordance to community documents.
GAW Miners, dependent in the United States, in the beginning served as a reseller and distributor of mining tools, later relocating into the hosted mining company – that is, the business would order and function machines on behalf of its buyers.
Towards the latter 50 percent of 2014, GAW began pitching the Hashlet, which the firm marketed by an in-household market. It was all around this time that skepticism about GAW’s promises began to steadily develop, which includes inquiries about its mining operations, relationships with nicely-identified businesses and Garza himself, who performed an outsized and at-occasions controversial job in community messaging on social media channels and in the media.
Certainly, GAW manufactured waves that August when he introduced that he had bought the BTC.com area name for $1 million. It would later be demonstrated that the area name was obtained by a extended-time period settlement that in the end lapsed.
In December of 2014, GAW released paycoin. At the time, Garza publicly delcared, “I have assurance that paycoin will be set up as the new dominant international on the internet currency.”
But opposition to GAW had been steadily increasing, with a community gulf widening amongst the firm’s normally-zealous clientele on its formal forum and opponents – in lots of situations buyers or former buyers by themselves – on BitcoinTalk. Even continue to, the coin was positioned as a payments-friendly altcoin with the backing of GAW.
Yet as CoinDesk described at the time, paycoin would in the end fail due to the very exact same pump-and-dump techniques that Garza and GAW decried when launching it. As details from CoinMarketCap shows, paycoin’s $20 “flooring” didn’t final extended, as the rate tumbled below $2 by the finish of January 2015.
A buyback scheme was subsequently introduced, but the cryptocurrency’s rate ongoing dropping in the times that followed.
Street to fraud lawsuits
Ultimately, the paycoin debacle would establish to be the initially stage in a months-extended collapse for GAW. The period noticed Garza himself go (in the eyes of some) from cryptocurrency messiah to cryptocurrency pariah.
February noticed the launch of hundreds of countless numbers of internal emails, which includes these published by Garza himself, which discovered the existence of the SEC inquiry – described initially by the cryptocurrency blog CoinFire but denied at the time by the firm. Subsequently leaked emails would also exhibit that GAW had, in reality, marketed more mining processing electric power than it actually possessed.
The pursuing months and months featured the emergence of new efforts to revive GAW’s fortunes, by aborted services like Mineral (a crypto trade) and CoinStand (a paycoin-focused web-site for purchasing products and solutions from Amazon).
That summer, a electric power firm in Mississippi gained a default judgment from GAW just after the firm failed to shell out for electric power at a facility in the condition.
In December 2015, Garza, GAW and ZenMiner, an affiliated mining firm, were being sued by the SEC for the unlicensed sale of securities and operating a Ponzi scheme, as CoinDesk described at the time. An investigation by the Justice Division, simultaneous with the SEC pursuit, culminated with the wire fraud charge responsible plea.
Approximately two years just after the initial SEC lawsuit filing, a U.S. district judge held Garza liable for more than $9 million, a go that came months just after the SEC’s bid for an $11 million default judgment from GAW Miners and ZenMiner was approved.
Josh Garza (on the ideal) graphic via CoinDesk archives