Greed just leads to trouble – several people in the crypto space can attest to this. One man, Homero Joshua Garza, who’s company has been accused of running a cryptocurrency Ponzi scheme, has recently been sentenced to 21 months in prison by a federal judge for allegedly giving into greed.
Theft Is Rampant in the Crypto Space
The crypto arena appears marred with those who would manipulate a new and growing form of financial technology for their own benefit. Recently, it’s been discovered that most initial coin offerings (ICOs) are fake and have made off with millions of dollars in investors’ hard-earned cash.
New ventures raise money for their operations by selling new coins that users will need to access the companies’ products and services. The trouble is, many of them disappear halfway through. Operations never come to fruition, and while the executives still make off with all that cash, those who invested their funds wind up in a monetary gutter.
The Intent Is Never Different
While this case doesn’t involve an ICO, the notion was clearly the same. Greed became the primary factor behind the business, and the man in charge is paying the price. Garza pled guilty last year to one count of wire fraud after his company GAW Miners ran an alleged Ponzi scheme that garnered roughly $9 million from thousands of people across the globe.
Garza, during better times. Image from Bitcoin.com
Following his near two-year long prison sentence, Garza will have to undergo three years of supervised release and pay the $9 million back. Prosecutors were particularly blunt in their case against Garza, commenting that he “lied to investors and customers and took their money.”
A Little History
GAW Miners – short for “Geniuses at Work” Miners – first came about in 2014. The business made a name for itself reselling mining rigs and began as a legitimate enterprise. Unfortunately, by the end of the year, bitcoin’s hash rate had increased significantly, which rendered the company’s mining software null and void.
Garza was unable to pay back his initial investors and tried to fix things by creating his own altcoin, later dubbed “Pay Coin.” Garza allegedly offered each coin at $20 and made false claims of a $100 million reserve. The currency also touted its own cloud-based mining and wallet services, neither of which existed, and used money from new investors to pay old ones. When Garza’s brother Carlos was issued a subpoena in 2015 to appear before Securities and Exchange Commission (SEC) lawyers in Boston, he responded to each question with:
“I’m very scared. I don’t understand these types of questions, this type of law at all. I want to help, but I’d have to have an attorney present. I can’t afford one at this time, but if I were to get appointed counsel or retain counsel, then I’d absolutely come back and help.”
The Aftermath
In their sentencing memorandum, federal prosecutors write:
“As with all Ponzi schemes, eventually the truth caught up with the defendant and his companies. The market value of Pay Coin collapsed, and many customers lost everything they had invested.”
Garza explained in a phone interview that GAW began because of scammers. When he first heard about bitcoin, Garza was intrigued by the technology and spent $100,000 on a mining rig he never received. Though he refused to say which company he had purchased from, the situation led to much frustration and he decided to start a company to try and fix things. He says that GAW Miners made over $1 million in its first month, and that the company had over 100,000 customers at one time, with roughly 10,000 to 15,000 new accounts being added each day.
Remorse Creeping In
Garza submitted a three-page apology to the judge overseeing his case and admitted that while the company began with a “legitimate purpose,” it eventually became a tool for greed. The letter explains:
“That greed turned into poor personal and business purchasing decisions, like spending unnecessary money on a private flight with our management team to a conference and even large bonuses to myself.”
Garza has been ordered to report to prison on January 4, 2019.
