Bitcoin cloud miners a ‘$20m Ponzi scheme – there was no cloud at all’

The US Securities and Exchange Commission (SEC) has filed charges against two bitcoin mining businesses it says operated as illegal Ponzi schemes.

According to a complaint [PDF] the watchdog filed with the US District Court in Delaware, GAW Miners and Zenminer, both controlled by Josh Garza, stand accused of taking money intended for mining operations and using it to pay other investors.

The SEC alleges that the two companies, who billed themselves as cloud computing operations devoted to mining bitcoins, never actually had the hardware necessary to perform the computing tasks associated with cryptocurrency mining.

Both GAW Miners and ZenMiner charged customers for the rights to use dedicated bitcoin mining “hashlet” hardware hosted remotely. Users were led to believe that they were purchasing access to the cloud-based mining machines, with the promise that their money would be returned when the cryptocoins were mined.

Instead, the SEC charges, Garza and his two companies used the estimated $19m that the 10,000 customers paid for the hashlet rights to line their own pockets or pay out returns to early investors rather than actually mine bitcoin.

Ultimately, the SEC alleges, Garza’s companies never owned the hardware needed to deliver the promised payouts, and instead reverted to a

Read more ... source: TheBitcoinNews

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