A civil lawsuit has been filed on behalf of the customers of the now-defunct cryptocurrency mining company GAW Miners, naming its CEO and a longtime investor as defendants.
Filed in the US District Court in Connecticut, the suit names two firms, GAW Miners and ZenMiner, as well as CEO Homero Joshua Garza and investor Stuart Fraser, the latter of whom previously served as vice chairman of Wall Street investment bank Cantor Fitzgerald.
The complaint features many of the longstanding allegations levied against GAW Miners since the firm collapsed in mid-2015, including that it purposefully mislead customers about its operations, both in connection with its mining services as well as the cryptocurrency it released, paycoin.
In many ways, the suit mirrors the one filed by the US Securities and Exchange Commission (SEC) in December, which indicted Garza on allegations of securities fraud and the operation of a Ponzi scheme.
Judge Jeffrey Mayer stayed that suit in April, a move that came after a series of postponements were filed by the defense that sought to extend their response to the SEC's charges. The new civil suit's plaintiffs – former customers Denis Marc Audet, Michael Pfeiffer, Dean Allen Shinners and Jason Vargas – are seeking class-action certification and have requested a trial by jury.
The complaint accuses Garza, GAW and ZenMiner of committing securities fraud and common law fraud, and seeks to hold Fraser liable as well. According to court filings, the plaintiffs are seeking "damages against defendants for their violations of federal and state securities laws and state common law" as well as any associated court expenses.
The civil suit complaint states:
"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."
Marjorie Peerce, a defense attorney who is representing Garza in the suit filed by SEC, did not immediately respond to a request for comment, nor did Cantor Fitzgerald.
Hashlets as securities
Prior to its collapse, GAW had faced accusations that it was selling more mining power than it actually possessed, providing payouts with the proceeds obtained from customers who were buying "Hashlets", virtualized mining products that the SEC later asserted constituted securities.
GAW shut down its mining operations in early 2015, and the firm was later sued by a Mississippi electrical utility that provided electricity to its mine in the state. Emails leaked amid the firm's collapse and testimony from former employees later bolstered the Ponzi scheme claims, which ultimately formed the crux of the SEC's suit.
The civil suit details a variety of allegations levied against Garza and GAW, including one tied to the creation of a mining product advertised as a vehicle for raising charity funds for a memorial fund dedicated to those who died following the terrorist attacks on 9/11. The SEC previously included this charge in its December 2015 indictment.
Like the SEC, plaintiffs named ZenMiner as a defendant, though both the government and former employees have alleged that it was a venture controlled entirely by Garza but falsely represented as a separate company.
Notably, the complaint details the long-standing relationship between Garza and Fraser, the latter of whom featured in some of the company's marketing materials and was cited during an interview with The Wall Street Journal as evidence that GAW was not a Ponzi scheme.
"Why would a guy that already has a ton of money, and would get thrown in jail if he was involved in anything sketchy, be involved in a scam?" Garza told the Journal at the time.
Company emails leaked amid the collapse of GAW in the spring of 2015 detail Fraser's involvement, who owned as much as 41% of the firm and communicated frequently with Garza via digital means.
The suit also makes reference to a series of emails leaked last spring that detail the connection between Cantor and GAW. At least one meeting was held between officials at the firm and GAW staff, though it does not appear that Cantor ever made an investment or moved past initial exploration.
Fraser's biographical information was later removed from the Cantor Fitzgerald website.
Fraser was also involved with a GAW-related Internet service provider venture that operated primarily in the Northeast US. That firm later attracted broad criticism after customers began complaining about service outages and a lack of responsiveness from company representatives.
The filing comes months after an effort to launch a civil lawsuit against GAW and its leadership first materialized. According to organizer Allen Shinners, much of the delay had to do with finding a law firm willing to take the case.
The full complaint can be found below:
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