A man who, according to federal authorities, ran a fake cryptocurrency Ponzi scheme and pleaded guilty last year to one count of wire fraud is now headed to prison.
On Thursday, Homero Joshua Garza, also known as Josh Garza, has now been sentenced by a federal judge in Hartford, Connecticut, to 21 months in prison, three years of supervised release, and more than $9 million in restitution. The news was first reported Thursday by CoinDesk.
In their sentencing memorandum filed before the hearing, prosecutors were blunt in their assessment of Garza, saying that he “lied to investors and customers and took their money” to the tune of $9 million in losses spread across thousands of people worldwide.
GAW Miners—which stood for Geniuses at Work—first arrived on the Bitcoin scene in 2014, re-selling mining rigs. While GAW initially began as a legitimate company, it soon shifted to its own cloud-based mining service (ZenMiner). When GAW was unable to fill demand for this service, Garza created something called “hashlets”—a slice of purported mining profits, that would “always make money.” As 2014 drew to a close and as the Bitcoin hash rate increased, making it more difficult for miners anywhere to make money, his hardware became obsolete.
As he could no longer pay earlier investors, Garza switched tactics again and introduced GAW’s own altcoin, dubbed “PayCoin.” He promised a $20 per PayCoin price floor, which he would prop up with a claimed $100 million reserve that did not actually exist. GAW also ran its own cloud-based wallet service (Paybase), cloud-based mining service (ZenMiner), and online discussion board (HashTalk). All were fraudulent, using money that later customers put in to pay out earlier ones.
In August 2015, Garza’s brother, Carlos Garza, a former GAW employee, was ordered to respond to a subpoena as part of the Securities and Exchange Commission’s investigation into the company. When Carlos Garza appeared before SEC lawyers in Boston, not only did he refuse to answer almost every question, but he provided the same answer nearly verbatim each time: “I’m very scared. I don’t understand, these type of questions, this type of law at all. I want to help, but l’d have to have an attorney present. I can’t afford one at this time, but if I were to get appointed counsel, or retain counsel, then I’d absolutely come back and help.”
As SEC lawyers pointed out, the government does not appoint counsel in civil cases.
A curious origin story
Over time, Josh Garza’s scheme drew the attention of the SEC, which formally brought a civil complaint in December 2015. Garza pleaded guilty to criminal charges in July 2017.
Federal prosecutors said Garza’s entire setup was a house of cards. “As with all Ponzi schemes, eventually the truth caught up with the defendant and his companies,” they wrote in their sentencing memorandum. “The market value of PayCoin collapsed, and many customers lost everything they had invested.”
In a phone interview with Ars in January 2015, Garza said that he “started the company because of scammers.”
He claimed that he first heard of Bitcoin around a year earlier, at which point he tried to buy a hardware mining rig and “spent $100,000 for a product I never got.” He declined to say which company he purchased from.
“I’d never had any experience with that—realizing a couple weeks later that these guys didn’t care how much money I can afford to lose,” he said. “I got really frustrated and thought we should start a company to try to fix this.”
Garza told Ars that GAW made “over $1 million in sales our first month,” adding that, within a few months, “we leveled at $60 million to $80 million per year.”
He claimed the company had 100,000 customers at the time, with “10,000 to 15,000 new accounts per day.”
In this case, greed is not good
Garza’s attorney, Marjorie Peerce, wrote in her own sentencing memorandum that her client was deeply sorry for what he had done and that Garza should not be sentenced to prison.
In a three-page letter sent to the judge, Garza himself apologized directly and said that, while the company started “with a legitimate purpose,” the company eventually “turned into greed.”
“That greed turned into poor personal and business purchasing decisions; like spending unnecessary money on a private flight with our management team to a conference and even large bonuses to myself,” he wrote.
Garza, who is currently out on bond and is now living in Texas, was ordered to report to prison on January 4, 2019.