Josh Garza Sentenced to 21 Months for GAW Miners and PayCoin Scams
A Connecticut court has sentenced cryptocurrency scammer Josh Garza to 21 months in prison for his role in wire frauds that cost investors over $9.18 million USD. The CEO of the now-defunct company GAW Miners and founder of PayCoin was also ordered to repay investors’ losses in full.
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Guilty Garza Faced 20 Years in Prison
The sentence comes over a year after Garza pleaded guilty to wire fraud, in July 2017 — and is relatively light, considering he faced up to 20 years. After his release, he will have an additional three years’ supervised release including six months’ home confinement. He must report to prison on January 4th, 2019.
Garza was initially charged in February 2015, while GAW Miners and partner ZenMiner were fined $11.38 million in June 2017.
The American entrepreneur (full name Homero Joshua Garza) founded GAW Miners as a legitimate business selling bitcoin mining hardware in May 2014. However, he grew to realize there were greater profit margins in selling cloud mining contracts called “hashlets” and creating an entirely new cryptocurrency called PayCoin.
The U.S. Securities and Exchange Commission (SEC) determined hashlets represented an illegal security, and that GAW Miners had deliberately sold more contracts for hashing power than it actually controlled. The FBI also investigated the case.
A statement from the Connecticut District Attorney’s office says Garza “made multiple false statements related to the scheme, including stating that GAW Miners’ parent company purchased a controlling stake in ZenMiner for $8 million and that ZenMiner became a division of GAW Miners. In fact, there was no such transaction”.
Operating a Ponzi-style scheme, Garza and his companies used money from new investors to pay existing ones.
Garza’s Charm Offensive and PayCoin’s ‘$20 Floor’
Garza was perhaps most notorious for his role in PayCoin (XPY), a new cryptocurrency sold to investors as one that would dominate the consumer payments market. As part of a “media tour” and PR offensive, Garza regularly leaked rumors that PayCoin and its trading platform PayBase would integrate with Amazon search and shopping, and had arrangements with major credit card companies to release an XPY debit card. These deals also ever existed.
He also made the unlikely guarantee that XPY would have a “$20 floor”, never falling below that price thanks to “PayBase support mechanisms” that included $100 million in company reserves (which never existed) and co-ordinated price pumps based on media leaks and rumors. More recently, Garza admitted what was obvious to most in the cryptocurrency community all along — that a price floor guarantee for any asset was economically unsound.
A Degree of Closure, but No Money Yet
The sentence brings a degree of closure to the PayCoin “community”, once famous for inundating comment sections with defenses of their leader and insults for any reporter who dared question GAW Miners’ and PayCoin’s business model. The operation collapsed after just nine months, in 2015.
Members of the formerly vocal group greeted today’s sentencing news with silence on public forums, save for a handful who claimed to have profited before the scheme collapsed. The r/paycoin group on Reddit has long fallen inactive, with no company-related posts for the past two years.
those were the innocent days of crypto.
Im just glad i managed to flip that shit for couple hundred profit.
— T OG (@Tony_OGCH) September 13, 2018
Despite the court’s ruling that Garza must compensate investors in full, it’s unclear when or if this could actually happen. Instead, their experience serves as an expensive warning to potential investors that charming fraudsters have been part of the community for years, and will continue to be as long as the public refrains from rationally assessing their claims.
As an example of such claims, here are Garza’s own words from December 2014:
“The number one thing that debunks the Ponzi scam is that I could cash out and walk away now today and leave it. So many other alt-coin creators do that. I’m not I am investing and doubling down. All of our employees PayCoin is in escrow for them. 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. Try explaining to your wife why we still cannot use it to make money after eight months of this business. For better or worse I have my integrity, and I will not compromise on it. I will not go down that road.”
Did you or anyone else you know invest in GAW Miners, PayCoin or any of its associated projects? Feel free to share your experiences in the comments.
Images via YouTube