UPDATE 2 (1st December 22:00 BST): This article has been updated with comment from Josh Garza’s lawyer, Marjorie Peerce.

The US Securities and Exchange Commission has charged former GAW Miners CEO Josh Garza with the fraudulent sale of unlicensed securities and the operation of a Ponzi scheme.

The complaint, filed today in the US District Court for the District of Connecticut, focuses largely on the sale of Hashlets, the “virtual miners” sold by GAW Miners through its cloud mining site, ZenCloud.

The SEC said that Garza and GAW earned roughly $19 million in revenue from the scheme, which evolved from hardware hosting to cloud mining to the eventual launch of an alternative cryptocurrency and has as many as 10,000 customers and investors.

According to the SEC, Garza and GAW Miners knowingly misrepresented the nature of Hashlets, their proclaimed profitability and the manner in which mining income was sourced.

The agency, which sued Garza’s brother Carlos after he refused to testify during its investigation, wrote in the indictment:

“Defendants used the lure of quick riches from a twenty-first century payment system known as virtual currency to defraud investors. Though cloaked in technological sophistication and jargon, defendants’ fraud was simple at its core – defendants sold what they did not own, and misrepresented the nature of what they were selling.”

According to the SEC, GAW Miners’ sale of Hashlets was fraudulent at its core due to vastly insufficient mining power owned by the company and operated at its data centers. Emails leaked earlier this year show discussions among GAW staff, including Garza, regarding mining power shortfalls and efforts to expand capacity amid continuing Hashlet sales.

The SEC wrote:

“Defendants’ Hashlet sales had many of the hallmarks of a Ponzi scheme. Because defendants sold far more computing power than they owned and dedicated to virtual currency mining, they owed investors a daily return that was larger than any actual return they were making on their limited mining operations.”

Elsewhere in the complaint, the SEC drew attention to the false nature of GAW’s controlling stake in ZenMiner, the latter of which at the time was represented as a separate entity.

Reiterating prior claims by former GAW employee Eric Capuano, the SEC said that “this statement was false; no such transaction occurred because Garza had always owned and controlled ZenMiner.”

As part of the alleged misrepresentation, Thomas Fraser, a relative of Cantor Fitzgerald vice chairman and GAW investor Stuart Fraser, was asked to tell CryptoCoinsNews that the firm was his rather than Garza’s. Fraser was not directly named in the SEC’s filing.

The indictment comes months after GAW Miners crumbled amid growing controversy over its mining operations and failed promises that it would honor a $20 price for its alternative cryptocurrency, paycoin.

Subsequent staff exits and email leaks accelerated the collapse of GAW, which in the months since has been the target of civil lawsuits that seek to recoup losses.

A former utility provider for the firm, Mississippi Power Company, won a default judgment in August and recently told CoinDesk that it is “using all available remedies to collect the monies owed by GAW Miners”.

Paycoin and Hashstakers, the latter of which were online wallets that generated revenue for users that held their paycoins within GAW’s service, were also addressed in the SEC’s filing.

“In offering HashStakers to Hashlet investors, GAW Miners and Garza attempted to prolong their scheme and prevent the collapse of GAW Miners,” the SEC said.

The agency has asked the court for disgorgement of GAW-related gains from Garza as well as interest and civil damages.

When reached for comment, Garza’s lawyer, New York-based defense attorney Marjorie Peerce, told CoinDesk:

“Josh Garza is disappointed that the SEC has filed a lawsuit against him. Any further comments will be through the court process.”

The SEC is seeking a jury trial.

The full indictment can be found below:

SEC Complaint