BRATTLEBORO >> The founder of Great Auk Wireless, a now-defunct wireless provider, has been charged by the Securities and Exchange Commission with conducting a Ponzi scheme that used the lure of quick riches from virtual currency to defraud investors.
According to a press release from the SEC, Homero Joshua Garza perpetrated 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 press release. "Returns paid to some investors came from proceeds generated from sales to other investors."
The investigation into Garza's activities began earlier this year, but not before customers of Great Auk Wireless, about 1,000 of them in Vermont, began filing complaints about the wireless service with the state's telecommunications division.
Great Auk's assets are now owned by New England Wireless Company.
Garza, a 30-year-old Houston native who moved to Vermont at age 17 and attended Leland & Gray High School in Townshend, started his first company, Optima, a computer repair company, while he was in high school, and then started Great Auk Wireless, before settling down in Massachusetts.
But Garza made a name for himself in the digital currency industry with a failed company similar to Bitcoin.
In an interview conducted in February 2014 by Tech Crunch, Garza said he used $1 million of his own money from the sale of Optima and Great Auk.
"GAW Miners was born after someone ripped me off during an ASIC purchase," Garza told Tech Crunch. "I already owned the successful GAW.com, and decided to quickly launch GAW Miners in March 2014 to sell ASICs with fast shipping, reasonable prices, and compensation for any delays or downtime. The company was an overnight success and achieved over $10 million in sales during its first month and is on schedule to do $100 million in this first year."
An ASIC is an application-specific integrated circuit, a microchip designed for a special application.
According to research conducted by VTDigger, Garza had registered and dissolved about a dozen companies in at least three states — Vermont, Massachusetts and Delaware. According to VTDigger, the SEC, the Federal Trade Commission, the Department of Homeland Security and the IRS are all involved in the investigation into Garza's activities.
In 2014, Garza received a $64,130 grant from the Vermont Telecommunications Authority to serve 11 locations in Rutland County, but the company never delivered the service, according to the state.
The Attorney General's Office sent a letter on April 10 demanding the return of the grant award money. The Attorney General's Office says it sent a second letter on May 15, and it was delivered, but the state has not been reimbursed.
"As alleged in our complaint," stated Paul G. Levenson, Director of the SEC's Boston Regional Office, in the press release, "Garza and his companies cloaked their scheme in technological sophistication and jargon, but the fraud was simple at its core: they sold what they did not own, misrepresented what they were selling, and robbed one investor to pay another,"
According to the press release, from August 2014 to December 2014, Garza and his companies sold $20 million worth of purported shares in a digital mining contract they called a "Hashlet" to more than 10,000 investors.
"Although Hashlets were depicted in GAW Miners' marketing materials as a physical product or piece of mining hardware, the promised contract purportedly entitled the investor to control a share of computing power that GAW Miners claimed to own and operate, stated the press release. "Investors were misled to believe they would share in returns earned by the Bitcoin mining activities when in reality GAW Miners directed little or no computing power toward any mining activity."
Because Garza sold far more computing power than he owned, he owed investors a daily return that was larger than any actual return they were making on their limited mining operations, noted the press release. "Therefore, investors were simply paid back gradually over time under the mantra of 'returns' out of funds that Garza and his companies collected from other investors. Most Hashlet investors never recovered the full amount of their investments, and few made a profit."
Kate Knibbs, writing for GizModo, noted the charges filed against Garza were not a surprise to people following the cryptocurrency industry.
"This is no surprise to anyone following Garza's herky-jerk movements through the crypto community. He quickly moved from peddling convoluted Bitcoin mining hardware and software with GAW Miners and ZenMiners to launching his own alternative cryptocurrency, Paycoin, which was frequently criticized as a pump-and-dump," wrote Knibbs.
Knibbs noted that Garza "suckered" people into buying 9/11-themed cyrptocurrency tools, claiming that his company wouldn't profit off of it, although it did.
"On or about September 11, 2014, GAW Miners announced the creation of the limited edition 'Remember' Hashlet with the logo of '9/11' to commemorate those whose lives were lost in the terrorist attacks ... Garza announced that GAW Miners would only sell 500 Remember Hashlets, and would donate all of the proceeds (approximately $10,000) to 'the 9/11 memorial fund.'"
But after selling approximately 2,290 Remember Hashlets for a total of approximately $48,000, GAW Miners donated only $10,000 to a 9/11 related charity, according to the SEC.
In late 2014, Garza responded to allegations that he was running a Ponzi scheme.
"The number one thing that debunks the Ponzi scam is that I could cash out and walk away now today and leave it,"Garza told Crypto Coin News' Scott Fargo. "I am making sure there is not going to be able to be one person to say we did one thing unfairly. We will kick butt by doing things by the books."
According to VTDigger, Garza, 30, still lives in Brattleboro, but earlier this year there were reports that he had fled to a country in the Middle East to avoid prosecution.