Josh Garza’s Bitcoin Companies Face $10 Million Default Judgement from SEC

Joshua Garza declined to respond to the SEC’s initial judgement, leading to a potential default against his companies.

Feb 16 2016, 8:59pm

Bitcoin. Image: Antana/Flickr

The Securities and Exchange Commission is requesting more than $10 million in penalties from the bitcoin mining firms GAW Miners and ZenMiner, after CEO Joshua Homero Garza failed to respond to fraud charges against the embattled companies.

In December, the SEC charged Garza and his companies with defrauding investors in a Ponzi scheme. Garza had claimed the companies were using hardware to mine Bitcoin, a process that uses large amounts of computer power to solve puzzles that verify and secure Bitcoin transactions. Computers that find the correct solutions are given a prize—bitcoin currency—for solving them, of which Garza promised a portion to his customers.

In reality, Garza devoted "little or no computing power toward any mining activity," according to the SEC. Instead he paid customers with funds from his other ventures, including Bitcoin exchange Paybase, which imploded in April of 2015.

Garza had guaranteed that customer mining contracts with GAW and ZenMiner, which he community called Hashlets, would make a profit. The company sold at least $19 million Hashlets to more than 10,000 investors, most of which never recovered their full investments, and very few who made a profit.

After Garza declined to respond to these charges, the SEC filed a motion on Friday for a default penalty of $10,384,099 against the firms, including $10,078,331 in penalties plus prejudgement interest. The filing targets the companies specifically, as Garza has requested an extension to respond to charges filed against him personally.

"GAW Miners, often through its CEO Garza, also made a number of false and misleading statements to investors and potential investors about its and ZenMiner's virtual currency Mining operations," the SEC wrote.

It is still unclear where Garza is today, as he waived his motion of summons in this case, and it has been suggested that he has fled the country. Garza's lawyer Marjorie Peerce declined to comment on the case, or the whereabouts of her client.