Former Somers Resident Sentenced in $9M Virtual Currency Scheme

SOMERS, CT — A former Somers resident has been sentenced in a $9 million virtual currency scheme, a leading prosecutor said.

John H. Durham, United States attorney for the District of Connecticut, said that Homero Joshua Garza, 33, a resident of Texas who used to live in Somers, was sentenced Thursday by U.S. District Judge Robert N. Chatigny in Hartford to 21 months in Prison, followed by three years of supervised release, or his role in his companies’ purported generation and sale of virtual currency.

Garza must spend the the first six months of his probation in home confinement, Durham said.

Virtual currency is defined in case records as a "digital representation of a value that can be traded and functions as a medium of exchange ... Virtual currency generally is not issued or guaranteed by any jurisdiction or government, and its value is decided by consensus within the community of users of the virtual currency ... A virtual currency generally self-generates units of currency through a process called “mining” ... A virtual currency “miner” is computer hardware that runs special computer software to solve complex algorithms that validate groups of transactions in that virtual currency ... Once a complex algorithm is solved, a unit of currency, such as a bitcoin, is awarded to the individual operating the miner."

According to case records, Between approximately May 2014 and January 2015, Garza, through companies he founded and operated called GAW, GAW Miners, ZenMiner, and ZenCloud, defrauded victims out of money in connection with the procurement of virtual currency on their behalf.

The companies sold miners, access to miners, and the right to purchase a virtual currency called PayCoin, as well as “hashlets,” which entitled an investor to a share of the profits that GAW Miners or ZenMiner would purportedly earn by mining virtual currencies using the computers that were maintained in their data centers," case records show.

"In other words, hashlet customers, or investors, were buying the rights to profit from a slice of the computing power owned by GAW Miners and ZenMiner," Durham said.

To generate business and attract customers and investors, Garza made multiple false statements related to the scheme, including a claim that GAW Miners’ parent company purchased a controlling stake in ZenMiner for $8 million and that ZenMiner became a division of GAW Miners, according to case records.

There was no such transaction, Durham said.

Garza also stated that the hashlets his companies sold engaged in the mining of virtual currency, but the companies sold more hashlets than was supported by the computing power maintained in their data centers, Durham said.

"Stated differently, Garza'a companies sold the customers the right to more virtual currency than the companies’ computing power could generate," Durham said.

Garza also stated that the market value of a single PayCoin would not fall below $20 per unit because his companies had a reserve of $100 million that the companies would use to purchase Paycoins to drive up its price, according to case records.

No such reserve existed, Durham said.

During the scheme, Garza, through his companies, used money his companies had made from new hashlet investors to pay older hashlet investors, according to case records.

The payments were money that the companies owed the older investors based on the purported mining GAW Miners and ZenMiner had done on the investors’ behalf, Durham said.

Through the scheme, Garza defrauded hundreds of individuals around the world of a total of $9,182,000, Durham said.

Judge Chatigny ordered Garza to pay restitution in that amount.

On July 20, 2017, Garza entered a guilty plea to one count of wire fraud. Garza, who is released on bond, was ordered to report to prison on Jan. 4, 2019.

Photo Credit: Shutterstock

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