BRATTLEBORO — A man who sold virtual currency via several companies has pleaded guilty to a scheme that defrauded victims for more than $9 million.
The United States Attorney District of Connecticut announced the plea deal on Thursday afternoon.
"Homero Joshua Garza, 32, of Texas, formerly of Somers, Conn., and Brattleboro, waived his right to be indicted and pleaded guilty today in Hartford [Conn.] federal court to one count of wire fraud related to his role in his companies' purported generation and sale of virtual currency," a press release from the federal attorney's office stated.
Between May 2014 and January 2016, Garza used four companies — GAW, GAW Miners, ZenMiner and ZenCloud — to defraud victims out of money, according to the press release.
Garza founded the now-defunct Optima Computers in Brattleboro in 2002. Once Optima went out of business, Garza and his then business mentor, Stuart Fraser, founded Great Auk Wireless High Speed Internet, also in Brattleboro, whose client base was later bought by an unrelated internet provider. The two men also founded GAW Miners and ZenMiner.
Virtual currency was described in the press release as "a digital representation of a value that can be traded and functions as a medium of exchange." It is not issued or guaranteed by any jurisdiction or government. Value is decided on by consensus within a community of users of the currency.
"A virtual currency generally self-generates units of currency through a process called 'mining,'" the press release stated. "A virtual currency 'miner' is computer hardware that runs special computer software to solve complex algorithms that validate groups of transactions in that virtual currency. Once a complex algorithm is solved, a unit of currency, such as a bitcoin, is awarded to the individual operating the miner. This process is known as 'mining.'"
Garza's companies sold miners, access to miners and the right to purchase "paycoin" and "hashlets."
"A hashlet entitled an investor to a share of the profits that GAW Miners or ZenMiner would purportedly earn by mining virtual currencies using the computers that were maintained in their data centers," the press release stated. "In other words, hashlet customers, or investors, were buying the rights to profit from a slice of the computing power owned by GAW Miners and ZenMiner."
U.S. Attorney for the District of Connecticut Deirdre Daly and Patricia Ferrick, special agent in charge of the New Haven Division of the Federal Bureau of Investigation, stated that Garza made multiple false statements to attract customers and investors: Garza had talked about a parent company buying a controlling stake in ZenMiner for $8 million and that ZenMiner had become a division of GAW Miners. But there had been no transaction of the kind.
Garza had also said "hashlets" sold by his companies had engaged in the mining of virtual currency. But his companies sold more of the currency than was supported by the computing power in their data centers, according to the press release.
Also, Garza claimed the market value of a single "paycoin" would not fall below $20 per unit. Garza said his companies had a reserve of $100 million that could be used to drive up its price. But no reserve existed.
"During the scheme, Garza, through his companies, used money his companies had made from new 'hashlet' investors to pay older 'hashlet' investors," the press release stated. "The payments were money that the companies owed the older investors based on the purported mining GAW Miners and ZenMiner had done on the investors' behalf."
According to court documents filed by the U.S. Securities and Exchange Commission, violations committed by Garza "relate to his sale of investment contracts, that he named hashlets, to more than 10,000 investors."
The loss attributed to the scheme was $9,182,000, according to the press release. Garza faces a maximum sentence of 20 years in prison. He is scheduled to be sentenced on Oct. 12.
Reach staff writer Chris Mays at 802-254-2311, ext. 273, or @CMaysBR.