Investors Lose Millions in Cryptocurrency Scam
Homero Joshua Garza, the mastermind behind a cryptocurrency scam that defrauded investors more than $9 million will be spending time behind bars. After pleading guilty to one count of wire fraud, Garza will spend 21 months in jail followed by three years of supervised release. Victims of Garza’s cryptocurrency scheme are also expected to receive compensation from Garza as per court orders.
The sentencing of Garza and the penalties enforced will go a long way in discouraging criminals out for a quick buck from preying on unsuspecting cryptocurrency investors.
In Garza’s charge sheets, the prosecutors were able to prove that Garza founded and operated numerous Connecticut based businesses which he used to run his cryptocurrency scam. The Connecticut-based businesses include; GAW Miners, ZenMiner and ZenCloud, which were in operation between 2014 and 2015. Garza was using these businesses to; sell bitcoin-mining hardware, offer investors shares in his cryptocurrency mining operation. Garza also used these establishments as fronts to sell a digital currency known as PayCoin.
Garza’s businesses were found to be illegal since they were operating using numerous false statements and misleading information on his firm’s capabilities and financial backing. Garza used non-factual and inaccurate data to draw investors to his enterprises fraudulently. Garza then employed Ponzi-scheme tactics to elude detection from authorities further.
According to Special Agent Mark Munster, Garza got in the cryptocurrency business at the right time since investor interest and enthusiasm was high. During this time, Garza successfully marketed himself and his businesses to unsuspecting investors.
Garza started by selling cryptocurrency mining equipment through his firms. During this time, Garza’s was able to convince investors that he was out to make it easier for people with little or no technical know-how, have easy access to cryptocurrencies.
He later changed his business model by offering to purchase cryptocurrency mining hardware on behalf of his clients, then set up the miners at GAW Miners Data Center. Garza assured his clients of profits from the mining activities of the mining hardware set up at GAW Data Centers. Finally, Garza moved on to selling hashlets (shares) of the profit made from his data center’s mining activities.
Special Agent Munster elaborated that Garza’s firms did not have the required infrastructure to mine the volume of bitcoins to support the value of shares he was selling. Munster was able to prove that Garza needed more computing power from powerful computers and a larger data center than the ones he was running.
Without the necessary infrastructure to back the shares, he was selling Garza began using new investments in his firms to pay returns to his clients. It is at this time that Garza also started selling his own virtual currency PayCoin. Garza went on to deceive investors that PayCoin had a financial reserve worth $100 million while also claiming he was in partnerships with firms like Amazon and Target. Garza was, therefore, able to acquire millions of fraudulently from unsuspecting investors worldwide through the sales of worthless shares and PayCoin.
The FBI became aware of the ongoing scam thanks to the complaints filed against Garza and his firms by the SEC (Securities Exchange Commission) prompted by investor grievances in 2015. The FBI initiated an investigation on Garza and his firms since he violated both civil securities laws and criminal laws
Other than relying on an extensive analysis by the Security Exchange Commission (SEC), the FBI interviewed employees who Had been working for Garza plus investors who happened to be victims of the fraudulent scheme. After conducting these interviews, all that was left to do was follow the money trail.
Upon following the money trail, Special Agent Munster and his team were able to uncover where the money was going. The investigating team discovered that Garza had bought a Ferrari, Lamborghini and a Maserati.
Garza also tended flying to Vegas on a private jet while also taking his employees out on the Vegas strip using funds he had fraudulently acquired from duped cryptocurrency investors.
Get to Know About Digital Currencies
Understanding Digital Assets
Virtual currencies, also known as cryptocurrencies can be termed as a digital or electronic representation of value. In jurisdictions or places where cryptocurrencies are accepted. Individuals can use them as a medium of exchange for goods and services.
The first, and most popular digital currency (cryptocurrency) is bitcoin. There are others such as Ethereum and Litecoins. It is also worth noting that there more digital currencies are regularly being made public through ICOs. (initial coin offerings)
As digital assets and ICOs get increasingly popular, investors are encouraged to use tools and resources from the Securities Exchange Commission (SEC) to acquaint themselves with these kinds of investments opportunities. Information and tools available from the SEC can also be used to spot scams.