Garza gets 21-month sentence for bitcoin scheme

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HARTFORD, CONN. — Despite pleas for leniency, a federal judge sentenced the founder of a Brattleboro, Vt., internet company to 21 months in prison.

"Mr. Garza engaged in serious misconduct that hurt a lot of people in ways that are profound and for many, irreparable, and because of the extraordinary victim impact, a sentence of probation is out of the question," said Judge Robert N. Chatigny.

In July 2017, Garza pleaded guilty to wire fraud "related to his role in his companies' purported generation and sale of virtual currency," stated a press release from the United States Attorney's Office for the District of Connecticut. As part of the plea deal, Garza agreed not to appeal any sentence levied by the court.

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. Great Auk was eventually bought out and no longer exists. In 2014, Garza and Fraser also founded GAW Miners and ZenMiner, bitcoin mining companies.

Allen Shinners, who spoke on behalf of more than 100 investors, said Garza and Fraser started their crypto-coin mining company when enthusiasm was high and people were naive, and Garza was able to take advantage of that.

"Part of what GAW Miners was promoting was products that were always profitable and never obsolete," he told the Judge. "And because GAW and then ZEN Miners promoted their own computing power in a warehouse in Mississippi, rather than selling machines to investors, "It was a no-brainer to most people. Unfortunately, it didn't turn out to be as legitimate as everyone had hoped."

Shinners said victims all over the world of the scheme lost anywhere between a few hundred dollars to in excess of $250,000 and at least one who lost more than $1 million.

While Garza may have started out with honorable intentions, noted Shinners, it wasn't long before Garza was making false statements and promises and using money from new investors to pay off earlier investors, which is a hallmark of a Ponzi scheme. These false statements included that he had recently purchased a bit mining company for $8 million, that the value of his crypto-currency would never fall below $20 a unit, that major retailers had agreed to accept his coin and that he had $100 million to back up his promises.

"Those misrepresentations are important to keep in mind," said Assistant United States Attorney John Pierpont. What Garza was offering seemed like "a pretty good deal." Buying a unit at $11 that Garza promised would never go below $20 encouraged many people to take out loans or move money out of a retirement fund or buy units with credit cards.

"These are not nameless people on the other side of a computer who are just throwing money around," said Pierpont, who told the court his office was able to verify more than $9 million in losses to 192 victims. "Real people have suffered."

The judge noted according to sentencing guidelines, he could have sent Josh Garza to jail for 63 months. In addition to imposing a just punishment, said Chatigny, it was also necessary to send a message that this type of conduct won't be tolerated.

"It's important for people to understand that this misconduct is very serious," he said. "The harm is great and if a person engages in this kind of misconduct and is found guilty, imprisonment is almost certainly going to be part of the sentence."

"He is acutely aware of the harm he has inflicted on others," said Marjorie J. Peerce, of the Philadelphia law firm, Ballard Spahr. "He was blinded by greed. ... He has begun to recognize that over the last year."

Peerce asked the judge to take into consideration Garza's past, which included coming from a broken family, having an abusive step-father and how he helped raise his siblings. With his wife and children, Garza moved in with his in-laws in 2016, and he and his wife have built a new business. He is also a regular attendee of church and has been active in his community, she said.

"He has had to look his children in the eyes and tell them how he did wrong and hurt so many people," said Peerce.

Garza told the court he was sorry for his conduct.

"For a long time I wasn't ready to accept responsibility for my actions. I was very angry," he said. "The harm that I have caused other people ... I understand and I am ashamed of what I did. At this point, my only goal ... and I know a lot of the damage is not repairable, I understand that ... is to give people back things they once had. I will do every thing in my power to get back what was taken from people ... so that they can continue their lives."

When Garza's world began to fall apart, said his father-in-law, he was defensive, "blaming others for his legal difficulties and his generally bad circumstances." But in the past couple of years, he said, "I've seen Josh develop and grow into a position of taking responsibility, expressing remorse and seeking solutions to provide restitution."

He started a new business, said Garza's father-in-law, to find a way to pay back his victims and "Because of his strong faith and because it would make God happy. I believe with every fiber of my existence he is sincere ..." No one in court would name the new business or categorize it.

While Chatigny gave Garza credit for admitting to his culpability and for showing remorse, he noted during the time Garza was committing the offense for which he was sentenced, he was "an arrogant, egomaniacal, self-centered individual."

"It is regrettable that the man who is being sentenced today is not the one who engaged in the fraud," said Chatigny. "But the fact remains, it is the man who stands before the court ... who bears responsibility for the wrong and the harm done. It is also painful that a sentence of incarceration will be borne not just by Mr. Garza, but also by his young family."

Following the hearing, Shinners said he was not happy with the sentence.

"I think that a lot of people in the crypto community will agree me that it was very light," he said. "There are too many families and victims that suffered a lot more than just financial losses. Less than two years in prison ... it isn't meaningful justice to me and I think it will be seen as the same within the crypto community."

Shinners said he also found it hard to feel sympathy for Garza's family "When so many other families were damaged ... Sure you have some degree of sympathy for his family but he is the perpetrator of a crime. He should have thought about that before the crime was committed."

Garza will begin his sentence on Jan. 4, 2018, and if he shows good behavior, could be released within 18 months. Upon release, his sentence included three years of probation, with the first six months consisting of home confinement.

Garza and Fraser were also named in a civil suit filed by investors. Garza was eventually dismissed from the suit after he agreed to testify against Fraser. That case is ongoing. Most recently, Fraser's attorneys are demanding access to documents created during those meetings between Garza and a representative of the investors.

Bob Audette can be contacted at 802-254-2311, ext. 151, or raudette@reformer.com.


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