Investors sue founder of defunct Brattleboro firm

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BRATTLEBORO — A man accused by the Securities and Exchange Commission of operating a Ponzi scheme now faces a civil suit in the U.S. District Court for the District of Vermont.

According to documents filed on June 15, Homero Joshua Garza, who operated GAW Miners and ZenMiner, defrauded a number of investors in the cyber currency known as Bitcoins. Also named in the suit is Stuart A. Fraser, who at the time was a vice president at the investment firm Cantor Fitzgerald.

"Defendants used the lure of quick riches from a 21st-century payment system known as virtual currency to defraud investors," state the court documents. "Though cloaked in technological sophistication and jargon, defendants' fraud was simple at its core — defendants sold what they did not own and misrepresented the nature of what they were selling."

In December 2015, the SEC filed charges in the District of Connecticut, alleging Garza, who founded Great Auk Wireless in Brattleboro, used cyber currency — hashlets — to defraud his customers. The Securities and Exchange Commission is asking a federal judge to award a default judgment of more than $10 million against Garza.

Garza stands accused of perpetrating the fraud through his Connecticut-based companies, GAW Miners and ZenMiner, by purporting to offer shares of a digital Bitcoin mining operation. "In reality, GAW Miners and ZenMiner did not own enough computing power for the mining it promised to conduct, so most investors paid for a share of computing power that never existed," stated the SEC, in a press release. "Returns paid to some investors came from proceeds generated from sales to other investors."

In the spring of 2015, an investigator for the SEC received computer files from an unnamed GAW Miners employee, which showed Garza sold $20,755,203 in Hashlets, paying back $15,336,090 to investors. According to the files Garza charged $4,659,218 in "maintenance fees" to his investors, resulting in a total disbursement of $10,078,331.

Garza, who lived in Brattleboro when he founded Great Auk Wireless, moved to Somers, Conn., where he founded GAW Miners and ZenMiner. According to the filing, Garza, 30, now lives in Friendswood, Texas.

In 2002, Garza began Optima Computers in Brattleboro, which offered new computer systems for sale, as well as service and repair of existing computer systems, of which Fraser was an investor, according to the filing. After Optima Computers went out of business, Garza and Fraser founded Great Auk Wireless High Speed Internet, Which received a $60,000 grant to expand Internet access to a region of Vermont that was underserved. The grant eventually was paid back to the state.

Fraser, 55, lives in Armonk, N.Y., and "served as a mentor and business associate of Garza for over a decade. ... Fraser was a culpable participant in Garza, GAW Miners and ZenMiner's violations of federal and state securities laws."

According to the June 15 filing, Garza and Fraser are guilty of defrauding up to 10,000 customers by selling "physical mining equipment ... who would use its computing power to 'mine' for virtual currency."

In an effort to keep up with their scheme, contends the civil suit, Garza and Fraser engage in reckless and negligent behavior that included the marketing and sale of devices such as hardware-hosted mining, cloud-hosted mining, and online currency and investment contracts named Hashlets, Paycoins, hHashpoints and HashStakers.

According to the filing, Garza and Frazer collected roughly $19 million in revenue from their sales of Hashlets. "In reality, defendants sold far more Hashlets worth of computing power than they actually had in their computing centers. There was no computer equipment to back up the vast majority of Hashlets that defendants sold. ... In order to conceal from investors that the mining activity associated with Hashlets did not produce sufficient revenues to fund the payouts that had been promised to investors, GAW Miners used revenues from ongoing Hashlet sales to fund payouts to investors. Thus, Hashlets operated as a Ponzi scheme, in which investors' returns were mostly paid by using the money invested by others."

Garza and Fraser allegedly told their customers that Paycoin was widely accepted by well-known merchants, just one of "many false and misleading statements to potential and actual investors ... In marketing Paycoin, GAW Miners and Garza alluded that banks and investment firms were standing in line to support Paycoin and were financially backing it. At one point, Garza and GAW Miners represented that Paycoin had $240 million in financial support (outside investors)."

The civil suit contends the conduct of Garza and Frazer involved fraud, deceit, or deliberate or reckless disregard of regulatory requirements, and resulted in substantial loss, or significant risk of substantial loss, to other persons ... (and) had the hallmarks of a Ponzi scheme. Because defendants sold far more computing power than they owned and dedicated to virtual currency mining ... they owed investors a return that was larger than any actual return they were making on their limited mining operations," which is common law fraud.

Bob Audette can be contacted at 802-254-2311, ext. 160.


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