UPDATE (18th August 22:10 BST): This story has been updated with additional information.
The US Securities and Exchange Commission (SEC) has filed suit against a former employee of the now-defunct cryptocurrency mining company GAW Miners.
Carlos Garza, according to a 14th August filing, has allegedly refused to comply with a SEC subpoena in connection with its long-running investigation into GAW Miners and CEO Josh Garza. The law enforcement agency is investigating whether GAW violated securities law through the sales of its Hashlet mining products as well as the sales of the cryptocurrency paycoin.
The SEC is also investigating whether the company operated a Ponzi scheme.
According to the filing, Carlos Garza – the brother of GAW CEO Josh Garza who was primarily involved in the sales of mining products and paycoin to investors – appeared to give testimony on 12th August but refused to answer questions.
Investigators want to question him, the filing states, because of his knowledge of the company’s inner workings and the process by which it sold Hashlets and paycoins. Garza was sent an initial query letter on 30th July.
The filing notes:
“The Commission subpoenaed Garza to testify on Wednesday, August 12, 2015. Garza appeared for testimony but refused to answer any questions. Garza also failed to produce any documents requested in the subpoena, including a document he had earlier represented that he would produce.”
A court transcript shows that Garza told the SEC during testimony that he did not understand securities law and was afraid to respond to queries at the time without a lawyer present. Garza also refused to answer basic questions about himself, according to the text.
The SEC asked Judge Richard Stearns to require Garza to either show cause for why he can’t comply with the subpoena, or provide the mandated testimony and provide “all non-privileged documents in his possession, custody or control responsive to the Commission’s subpoena” by 4th September.
The court granted the SEC its request on 17th August.
GAW CEO Josh Garza did not immediately respond to a request for comment.
Details into investigation
The initial filing offers direct details of the agency’s investigation into GAW Miners and its CEO Garza, which focuses on both issues related to Hashlets as well as paycoin. The company’s mining service was scuttled earlier this year and at the time of press paycoin was trading at $0.025 cents.
GAW is also embroiled in several civil legal challenges, including a dispute with a Mississippi electric utility that ended last week with a default judgment after the company failed to appear in court.
Of note is the investigation’s inquiry into whether GAW Miners’ mining service was a Ponzi scheme, as investigators are looking into whether the company sold “far more Hashlets worth of computing power than the company actually had in its computing centers”.
The filing states:
“In particular, the Commission is investigating whether GAW Miners may have sold far more computing power than it owned and dedicated to virtual currency mining, and therefore, whether the company may have owed investors a return that was larger than any actual return it was making on its mining operations.”
“If GAW Miners did not have actual mining operations, that allowed it to earn the daily mining payout that it owed to Hashlet investors, then the payouts that investors received could only have been a gradual repayment over time, as ‘returns,’ the money that they and others had invested,” the filing continues. “As a result, some investors’ funds may have been used to make payments to other investors.”
The SEC is understood to be one of several US agencies investigating GAW. According to sources with knowledge of these efforts, state-based regulators are also conducting investigations into the company.
CoinDesk will continue monitoring this developing story.
The full SEC court filing can be found below:
Securities and Exchange Commission v Garza
Court room image via Shutterstock