The Securities and Exchange Commission (SEC) is seeking more than $10m from the cryptocurrency mining firms GAW Miners and ZenMiner in connection with its ongoing securities fraud suit.
Garza and the companies are accused of defrauding investors, and operating a Ponzi scheme in connection with its now-defunct mining service by selling more mining power than it actually possessed.
The SEC argued in its motion for default judgment, filed on 12th February, that Hashlets – mining contracts sold by GAW in 2014 through an internal market it maintained – constitute securities under the Securities Act and Exchange Act.
The filing states:
The agency further alleged that GAW and ZenMiner made material misrepresentations to its customers, resulting in more than $19m in revenue tied to the sale of Hashlets. These sales, the SEC said, were buoyed by public statements made by Garza.
"In addition, GAW Miners obtained money, in the form of additional Hashlet investments, as a result of public statements made by its CEO that the company knew or should have known were false," the agency said.
Notably, the SEC did not name Garza as one of the parties in the filing, in light of a recent court approval for an extension of time to response to the suit.
Marjorie Peerce, the defense attorney representing Garza, did not immediately respond to a request for comment.
Collapse fallout continues
Details of the SEC's investigation of GAW were first reported by bitcoin news blog Coin Fire. The company denied the existence of the suit, but information was disclosed following the release of GAW staff emails and, later, a lawsuit filed by the agency against Garza’s brother, who acted in a senior sales capacity for the company.
The full motion for default judgment can be found below:
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.