Bitcoin Mining Company Ponzi Scheme Investors Win Class Status

Investors in GAW Miners LLC’s cryptocurrency mining products can pursue securities fraud claims against the company’s co-owner as a class, a federal court said June 21.

Whether the company made misrepresentations about its computing capacity is an issue common to all class members, Judge Michael P. Shea wrote for the U.S. District Court for the District of Connecticut.

The class potentially includes over 212,000 users who made 33 million transactions, according to a company database.

GAW Miners sold products that allowed buyers to share in the profits generated from mining digital currency.

“An individual can ‘mine’ virtual currency by using software to solve complex algorithms that validate groups of transactions in that virtual currency,” according to the court. The first miner to solve complex mathematical problems to clear transactions is rewarded with newly-issued virtual currency.

The investors allege the company wasn’t directing their computing power to any mining pools, but was instead operating a Ponzi scheme to use money from new customers to pay existing customers the “returns” generated from mining activities.

The scheme violated the Securities and Exchange Act, Connecticut securities law, and common law fraud, the suit alleges.

The court modified the class definition to avoid standing problems. It gave the parties until July 5 to raise any concerns about the new definition.

Susman Godfrey LLP and Izard, Kindall & Raabe LLP represented the investors.

Hubbard & Reed LLP and Brenner, Saltzman & Wallman represented the defendant.

The case is Audet v. Fraser, 2019 BL 230939, D. Conn., No. 3:16-cv-940, 6/21/19.