In a world-first decision, a Connecticut jury decided that digital assets connected to cryptocurrencies are not securities, according to a defence lawyer.
Stuart Fraser, a GAW Miners investor, was exonerated of wrongdoing in a fraudulent scheme co-opted by ZenMiner LLC on Nov. 1. One of the defendants’ attorneys, Daniel Weiner of Hughes Hubbard & Reed LLP, told Law360, “It’s the first case we know of where a jury examined whether cryptocurrency items were securities.”
Since 2017, when co-founder Homero Joshua Garza pled guilty to wire fraud, the case against GAW Miners has been ongoing. As a result, Frazer, who owns 41% of GAW, is the only surviving defendant in the lawsuit.
GAW began by selling physical mining equipment but quickly partnered with ZenMining to offer remote management software that reportedly allowed users to control their mining equipment remotely.
The plaintiffs allege that the two corporations never genuinely held as much equipment as they stated in the beginning. Both GAW and ZenMining were ruled to be in default earlier in the case. Due to their inability to fulfil customers’ orders, the two firms established “hashlet contracts,” which gave clients a portion of the company’s crypto mining revenues.
In 2017, however, GAW was discovered to have sold many more hashlets than they actually possessed in their computer facilities. Rather, the corporation was utilizing new consumer funds to pay off existing customers. GAW Miners Founder Josh Garza Fined $12 Million For “Ponzi Scheme” Read more: GAW Miners Founder Josh Garza Fined $12 Million For “Ponzi Scheme”
GAW’s four products, including promissory notes known as “hashpoints,” tokens known as “Paycoin,” and virtual wallets known as “Hashstakers,” were found to be unregistered securities by the jury. Fraser was found not guilty as well.
Although the Securities and Exchange Commission classified hashlets as securities in its prior action against Garza, a jury in the most recent case against Fraser determined that clients actively controlled their hashlets, indicating that they could not be deemed a passive investment.
