Cryptocurrency Fraud – Federal Bureau of Investigation

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During this time, Garza also created and began selling his own virtual currency called PayCoin, which he failed to properly register before offering to the investing public. To encourage investors to purchase this new currency, Garza said his company had a financial reserve of $100 million that they would use to prop up the price of PayCoin to ensure it would never fall below $20 per unit. He also claimed partnerships with major corporations like Target and Amazon.

In truth, the corporate partnerships did not exist, there was no $100 million reserve, and the value of PayCoin quickly plummeted.

Between selling nearly worthless hashlets and the tanking value of PayCoin, Garza defrauded people worldwide of millions.

The FBI became aware of the scheme through the Securities and Exchange Commission (SEC), which had issued a complaint against Garza and his companies in late 2015. Prompted by investor complaints, the SEC had conducted a robust investigation and successfully obtained a court-issued injunction against Garza and his firms. Garza’s conduct, however, had not only violated civil securities laws but criminal ones as well, so the FBI initiated its investigation.

“We relied heavily on the extensive analysis by the SEC,” said Munster. “Then it was a matter of interviewing employees and other investors and following the money trail—looking at what was brought in and what was spent, what was real and what was invented.”

Munster said it was easy to see where some of the money was going: “Garza had a Ferrari, a Lamborghini, and a Maserati. He went to Las Vegas in a private jet and took his employees out on the Vegas strip. He was definitely caught up in the lifestyle of being a start-up mogul.”

Paying the price for those luxuries were thousands of duped investors. Munster said only several hundred of them came forward to investigators. “Many made small investments; many were overseas,” Munster explained. Although Garza has been ordered to pay restitution, Munster stressed, “It will be a long time until most of those people are made whole.”

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