GAW Miners — The Hashlets That Never Hashed

Between approximately May 2014 and January 2015, Homero Joshua Garza, founder and CEO of GAW Miners LLC and its affiliated entities ZenMiner and ZenCloud, defrauded investors of $9.18 million by selling “Hashlets” — virtual cloud mining contracts that he claimed were backed by real computing hardware in his companies’ data centers. The companies sold more hashrate than their infrastructure could deliver, and the contracts were in part fictitious. Garza then compounded the fraud by launching Paycoin, a proprietary cryptocurrency, and publicly promising that he would maintain its price above $20 per unit using a $100 million reserve that did not exist. Paycoin peaked near $16 before collapsing below $2 within weeks. Garza pleaded guilty in April 2017 to one count of wire fraud in the District of Connecticut and was sentenced on September 13, 2018, to 21 months in federal prison, three years of supervised release (the first six months in home confinement), and restitution of $9,182,000. The case is the first major cloud mining fraud prosecution in US history and established that selling cloud mining contracts backed by de minimis or nonexistent hardware constitutes wire fraud.

The dollar losses in the GAW Miners case are modest compared to later cloud mining frauds, but its historical significance exceeds its dollar value. Garza’s prosecution was the first time a US federal court definitively established that fake hashrate contracts are criminally fraudulent, creating the legal precedent that would govern cloud mining enforcement for the following decade. The SEC’s parallel civil action, filed in December 2015, added securities fraud liability on top of the criminal charge, creating a dual-enforcement template that regulators later applied to BitClub Network, Mining Capital Coin, and MiningMax.