Josh Garza, the former CEO of GAW Miners, has been sentenced to 21 months in prison in addition to six months of house arrest and three years of supervised release. He has been found guilty of wire fraud for a string of disasters centering around GAW Miners’ cloud mining operation and Paycoin.
GAW Miners was a popular and reputable source of crypto mining equipment around 2014. Garza actually was considered a crypto celebrity and had pull across social media during that time. However, the company switched its strategy from selling physical crypto mining rigs to offering a cloud mining service, offering “hashlets” to customers which represented a certain amount of mining power.
GAW Miners sold more hashlets than the actual hashing power they had, and it quickly turned into a Ponzi scheme where mining revenues were being paid by new investment rather than actual crypto mining. Like all Ponzi schemes, this could only work if investments exceeded payouts.
Things began to get tight for GAW Miners, as it was a particularly bad bear market and mining wasn’t that profitable. Perhaps due to this, it launched an initial coin offering (ICO) for Paycoin (XPY) to raise more funds. It reportedly spread speculation that Paycoin would become the #1 cryptocurrency and would be accepted by Amazon. None of that came to fruition.
The biggest claim that Paycoin made was that the minimum price would be USD 20 and that GAW Miners would coordinate across exchanges to support this price floor with its own capital. Garza made plenty of posts hyping up this price floor and saying how he was personally going to move the market. This ended up being a complete failure, Paycoin collapsed below USD 20 almost immediately and Garza stopped talking about it, even going as far as deleting past promises regarding the price floor. As of September 2018, Paycoin is worth only about USD 0.01.
GAW Miners collapsed in 2015, leaving Paycoin and hashlet investors holding an empty bag. Heavy litigation followed from the Securities and Exchange Commission (SEC) and the US Justice Department. This has finally come to a conclusion with the prison sentence, in addition to USD 9 million of restitution that Garza must pay. Also, in 2015 when GAW Miners collapsed, it didn’t pay its power bill and was ordered to pay USD 340,000 to the Mississippi Power Company.
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