CEO Behind GAW Miners, PayCoin Ponzi Scheme Sentenced to 21 Months in Prison

The CEO of now-defunct GAW Miners has been sentenced to 21 months in prison and ordered to pay $9.2 million in restitution to investors.

Homero Joshua Garza, the CEO of the now-defunct U.S. crypto firm GAW Miners, has been sentenced to 21 months in prison for defrauding investors, local news agency Hartford Business reports Thursday, September 13.

Garza received the verdict in the Hartford federal court, following his guilty plea to a wire fraud charge related to creating and selling a scamcoin dubbed PayCoin (XPY).

Instead of serving the original 20 year sentence, Garza will report to prison on January 4, 2019 and be jailed until 2021, with an additional three years of supervised release, including six months in home detention.

In addition to prison time, the former CEO of GAW Miners will have to repay a $9.2 million restitution to investors, which is the approximate amount of financial damage wrought by the nine-month crypto scam.

Founded in 2014, Bloomfield-based GAW Miners was a firm that specialized in manufacturing, supplying and selling special hardware for crypto mining. The company was shut down in 2015 following allegations of operating as a Ponzi scheme, which was followed by a lawsuit in 2016.

Created by GAW Miners developers, the PayCoin cloud mining cryptocurrency was launched in 2014. The digital currency was based on the SHA-256 algorithm and both proof-of-work (PoW) and proof-of-stake (PoS) protocols.

While GAW Miners had reportedly “guaranteed” investors a $20 floor price for PayCoin, the highest XPY price was $15.92 instead, according to CoinMarketCap.

In late August, the alleged former owner of crypto exchange BTC-e Alexander Vinnik was indicted and subjected to a “fake” interrogation by French prosecutors in a Greek Court. Following a protracted legal battle and several lower court rulings, the Greek Supreme Court eventually ruled to extradite Vinnik to Russia.

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FINRA Charges Broker With Fraud for Trading Unregistered Cryptocurrency

FINRA has charged Timothy Ayre with securities fraud and the illegal distribution of HempCoin, which he failed to register.

The U.S. Financial Industry Regulatory Authority (FINRA) has filed a complaint against Timothy Tilton Ayre, charging him with securities fraud and the illegal distribution of an unregistered cryptocurrency, according to a statement released on FINRA’s website Tuesday, September 11.

In the complaint, FINRA, overseen by the U.S. Securities and Exchange Commission (SEC), states that Massachusetts-based Ayre tried to lure investment to his public company, Rocky Mountain Ayre, Inc. (RMTN), by selling HempCoin, which he misrepresented as “the first minable coin backed by marketable securities.”  The regulator writes that Ayre’s claims are “fraudulent, positive statements about RMTN’s business and finances.”

Furthermore, Ayre stated that HempCoin is a security backed by RMTN common stock, telling investors that each coin was equivalent to 0.10 shares. As a result, more than than 81 million HempCoin securities were mined in late 2017 and sold on crypto exchanges. As Ayre never attempted to register the coin, FINRA has decided to charge the RMTN head with the unlawful distribution of an unregistered security.

In addition to the above, from January 2013 through October 2016, Ayre reportedly made false statements about the nature of RTMN’s business and the creation and “unlawful distribution” of HempCoin, as well as making misleading claims in RMTN’s financial statements.

FINRA, which has started a formal proceeding against RMTN by filing a complaint, reminds the public in the statement that anyone named in a complaint can file a response and request a hearing. If FINRA admits there were violations, the firm or individual might get a fine, censure, suspension, or be barred from the securities industry.

FINRA’s statement comes the same day as its ruling organization SEC has issued two separate cease-and-desist orders along with fines.

As Cointelegraph wrote September 11, the SEC filed a cease-and-desist against Timothy Enneking and his Crypto Asset Management fund, which “misrepresented” itself as the “first regulated crypto asset fund in the United States.” The SEC’s second notice addresses “ICO superstore” TokenLot, which the U.S. watchdog alleges has also breached the law by failing to register in the country.

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In an Apparent First, U.S. SEC Penalizes Crypto Hedge Fund

The SEC has issued a cease and desist order and a $200,000 fine to Crypto Asset Management for misrepresenting itself to investors.

The U.S. Securities and Exchange Commission (SEC) has issued a cease and desist order and a $200,000 fine to Crypto Asset Management (CAM) and its founder Timothy Enneking, according to a document published on the commission’s website Tuesday, September 11. According to CNBC, this is the first SEC disciplinary action against a digital asset management fund.

The SEC order says that CAM “misrepresented” itself as the “first regulated crypto asset fund in the United States,” and raised $3.6 million from 44 investors in late 2017, bringing its net asset value to $37 million.

According to the filing, the fund has “never been registered with the Commission in any capacity.” Тhe commission insists that CAM “wilfully” broke the law by claiming to have the necessary credentials associated with holding and trading securities.

After being contacted by the SEC, the company has agreed to stop its public offering and has offered a buyback to investors. CAM has also agreed to pay the fine, while it has not admitted guilt to the commission’s allegations.

Also today, the SEC issued an order against “ICO superstore” TokenLot. The Commission says that TokenLot breached the law by failing to register. Similar to CAM, the firm has agreed to pay a $471,000, but has not formally admitted to violating the law.

In a further move from regulators, the U.S. Financial Industry Regulatory Authority (FINRA) has filed charges against a Massachusetts man on September 11 for securities fraud and illegal distribution of an unregistered cryptocurrency HempCoin. If FINRA admits there were violations of securities law, Timothy Tilton Ayre or his public company, Rocky Mountain Ayre, Inc. (RMTN), might get a fine, censure, suspension, or be barred from the securities industry.

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Breaking: New York Judge Rules Securities Laws Can Apply to Cryptocurrencies

A New York federal judge has ruled that a case of alleged crypto fraud falls under the Securities Exchange Act.

In what appears to be the first U.S. court case to address the matter, a New York federal judge has ruled that U.S. securities laws are applicable for prosecuting crypto fraud allegations, Reuters reports September 11.

U.S. District Judge Raymond Dearie ruled that the case against Brooklyn resident Maksim Zaslavskiy, which alleges that he defrauded investors in two cryptocurrencies reportedly backed by real estate and diamonds, can continue.

Dearie ruled Tuesday, Sept. 11, that federal securities laws should be interpreted “flexibly,” dismissing a motion from Zaslavskiy’s lawyers to drop the charges on the grounds that the cryptocurrencies didn’t fall under the Securities Exchange Act.

As cited by the Financial Times, Judge Dearie wrote in a statement:

“The question is whether the ‘elements of a profit-seeking business venture’ are sufficiently alleged in the indictment, such that, if proven at trial, a reasonable jury could conclude that ‘investors provide[d] the capital and share[d] in the earnings and profits; [and] the promoters manage[d], control[ed] and operate[d] the enterprise.’ For present purposes, we conclude that they are.”

According to Reuters, Dearie’s statement and other filings in Zaslavskiy’s case did not mention any similar court decisions on applying federal securities law to crypto-related fraud cases.

Attorneys for Zaslavskiy did not respond to Reuters’ questions. Richard Donoghue, a spokesman for the office of U.S. Attorney who works on the case, declined to comment as well.

Prosecutors have claimed that in 2017, Zaslavskiy gained at minimum $300,000 from investors for a cryptocurrency called REcoin, which claimed to be backed by real estate, and Diamond, “backed” by diamonds. Prosecutors allege that no real estate or diamonds backed the digital assets.

Dearie noted that it would be up to the jury to make a final decision, adding that Zaslavskiy’s lawyers will be able to make their case in court that the aforementioned tokens should be considered currencies, making securities laws not applicable.

Earlier in March, Cointelegraph reported that another federal judge from Brooklyn ruled that the Commodity Futures Trading Commission (CFTC) can regulate cryptocurrencies such as Bitcoin (BTC) as commodities.

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Breaking: Founder of Crypto Exchange OKEx Allegedly Detained on Crypto Fraud Charges in China

The founder of crypto exchange service provider OKCoin and crypto exchange OKEx has allegedly been detained in China for suspected digital currency fraud.

Star Xu, the founder of exchange services provider OKCoin and the world’s second-largest crypto exchange OKEx, has allegedly been detained in China in relation to suspected digital currency fraud, local news outlet Sina News reports September 11.

According to the news outlet, Xu is currently being held in the Shanghai Weifang Xincun police station, and will be released within 24 hours if insufficient evidence is found of his participation in suspected fraud.

Tech news sources ZeroHedge reports that investors in WFEE Coin — a company where Xu is a shareholder — complained to the police about the company’s allegedly fraudulent practices, prompting the police to bring Xu in for questioning.

As ZeroHedge writes, WFEE issued tokens and sold them through their website. As a WFEE shareholder, Xu can be held responsible for any kind of fraud related to the company.

However, the investigation has seemingly shown that Xu’s company in Shanghai is not related to issuing the WFEE Coin, ZeroHedge notes, adding that it makes “little sense” for them to defraud investors through a Beijing subsidiary.

The news of Xu’s detentions comes shortly after OKEx volumes significantly surged this summer. As Cointelegraph reported earlier in August, OKEx posted a new record in July 2018 with $5.7 billion in volume, as compared to June’s $2.9 billion.

After the news of Xu’s alleged detention broke today, CoinMarketCap data showed that OKEx saw an almost 3 percent drop in trading volume over a 24 hour period, having traded around $714 million on the day.

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Chinese Police Hold OKCoin CEO For ‘Investigation’ Over Alleged Fraud Links

china police star xu okcoin okex

The CEO of Chinese cryptocurrency exchanges OKcoin and OKEx is in police custody over alleged fraud, local media report September 11. Xu’s Business Gets All-Clear As multiple sources on social media claim in addition to Sina News, Star Xu is currently assisting officers in Shanghai investigate fraudulent activity on the part of WFEE coin, of which he is a shareholder. Various posts show photographs of Xu at a Shanghai police station, albeit seemingly free to

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S. Korea’s Largest Exchange UPbit Runs ‘Internal Audit’, Dispels Fraud Allegations

UPbit, the South Korean exchange which investigators searched last Friday, says it has conducted an internal audit and cleared itself of fraud.

South Korea‘s largest cryptocurrency exchange UPbit said it has conducted an internal audit that disproves suspicions of fraud, local media reported Tuesday, May 15.

UPbit, which saw a sudden visit from financial regulators on Friday, May 11, on suspicion officials had faked balance sheets, has yet to publish the audit data, which it claims demonstrates its coin holdings are real.

Quoting the exchange’s CEO, local news outlet Naver now reports UPbit’s ledgers are “100%” in step with their wallets.

Claims that a “misunderstanding” between government inspectors over multiple wallets caused the suspicions also appear valid, social media commentators added Tuesday.

Friday’s original inspection caused panic on markets and coincided with Mt. Gox trustees apparently selling a further chunk of client liquidation funds, resulting in several days of price drops.

While the matter is not officially settled, responses note, UPbit’s reports about the audit would appear counterproductive if made at a time when no concrete information existed at all.

“We will see how the story unfolds, but I find it highly unlikely that UPbit would spin a narrative of innocence if they were under investigation where proof was easily seen through blockchain transactions,” a Twitter-based Korean cryptocurrency news commentator wrote.

UPbit, owned by a subsidiary of South Korean communications giant Kakao, is the world’s fifth largest crypto exchange by 24-hour trade volume, seeing about $910 mln in trades on the day to press time.

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