Bitcoin mining con netted $20m
US conman fined for ponzi scheme that promised profit from bitcoin mining companies
A conman in the US stole more than $20m in a bitcoin mining scam has been fined by the Securities & Exchange Commission (SEC).
The fraudster, Homero Joshua Garza, told investors into two companies that he was building powerful computers to mine bitcoins.
Bitcoin mining is the process whereby computers participating in a shared process to solve bitcoin algorithms, called hashes, which are part of the verification process of bitcoin transactions. Once a set block of hashes is solved, a set amount of new bitcoins are shared among the participating computing systems.
As the value of bitcoin has climbed in recent years, and the frequency at which new bitcoins are issued has decreased, so computing enthusiasts and investors have created ever more powerful custom computers dedicated to solving the algorithms and generating bitcoins.
The SEC investigation found that the two companies, GAW Miners and ZenMiner, had nothing like the computing power necessary to generate the promised volume of bitcoins, and in fact Garza was simply running a Ponzi scheme with new investors' money being used to pay older investors.
Around 10,000 people invested in the companies, very few of whom were able to recover their money. Garza was fined $12m by the SEC.