Deirdre M. Daly, United States Attorney for the District of Connecticut, and Patricia M. Ferrick, Special Agent in Charge of the New Haven Division of the Federal Bureau of Investigation, announced that HOMERO JOSHUA GARZA, 32, of Texas, formerly of Somers, Conn., waived his right to be indicted and pleaded guilty today in Hartford federal court to one count of wire fraud related to his role in his companies’ purported generation and sale of virtual currency.

According to court documents and statements made in court, “virtual currency” is 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. This process is known as “mining.”

Between approximately May 2014 and January 2016, GARZA, through GAW, GAW Miners, ZenMiner, and ZenCloud, companies he founded and operated, 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.” A hashlet 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. 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.

To generate business and attract customers and investors, 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. GARZA also stated that the hashlets GARZA’s companies sold engaged in the mining of virtual currency. In fact, GARZA’s companies sold more hashlets than was supported by the computing power maintained in their data centers. Stated differently, GARZA’s companies sold the customers the right to more virtual currency than the companies’ computing power could generate. GARZA also stated that the market value of a single paycoin would not fall below $20 per unit because GARZA’s companies had a reserve of $100 million that the companies would use to purchase paycoins to drive up its price. In fact, no such reserve existed.

During the scheme, GARZA, through his companies, used money his companies had made from new hashlet investors to pay older hashlet investors. 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.

The loss attributable to GARZA from the scheme was $9,182,000.

GARZA is scheduled to be sentenced by U.S. District Judge Robert N. Chatigny on October 12, 2017, at which time he faces a maximum term of imprisonment of 20 years.

This matter is being investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant U.S. Attorneys John T. Pierpont, Jr. and Jonathan Francis.