American Miner Accused of Running a Ponzi Scheme

News and Analysis

The U.S. Securities and Exchange Commission filed a claim in a court stating that founder of two mining companies established a Ponzi scheme in order to pocket money of his investors. The companies in question are ZenMiner and GAW Miners, both of which are owned by Homero Garza.

According to the Commission, the companies were offering investment scheme using so-called hashlets, which are dividend shares for future income based on expected mining revenues. However, according to the claim, the companies never had sufficient mining power in their disposal, so the investment would have never turned profitable. In fact, the companies paid some dividends using the amounts they obtained from later hashlet sales, which is obviously a part of a Ponzi scheme. The commission failed to determine location of both companies.

Mr. Garza’s lawyer stated that he is ‘disappointed’ because of the legal proceedings around the companies, however, no further comment was provided. The lawyer told Reuters that the accused party will be available for comments as the process goes.

Ponzi scheme is a notorious scam design, where a fraudster uses later investments to pay dividends for earlier investments. The scheme works that way for a short while, establishing common trust to the company’s activity, however, eventually it inevitably fails, making lots of people lose their money. Many famous Ponzi-scheme companies used their own form of investment contracts backed by nothing, and the whole turnover of the scheme was concentrated in sales of those null and void papers.

The estimated amount of investment contracts sold by ZenMiner and GAW Miners comprises about $20 million with almost 10,000 probably defrauded (if the accusation proves right). The companies have been active in the second half of 2014, selling the ‘hashlets’ online. The Securities and Exchange Commission claims that most of the companies’ investors never obtained their investment back, and only a few could realize any profit. The purpose of the claim in the court is to oblige the companies to pay the penalty and recover the funds it has purportedly embezzled.

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