[TL; DR]
On 24 April the US SEC filed a lawsuit against Geosn and its founders for misappropriating investor funds and operating an illegal crpto mining business.
Geosn founders misappropriated more than $1.2 million of investor funds.
A coordinated global approach is ke to support rapid responses when fraudulent activities such as hacking occur.
Introduction
The United States enforcement action against GeosYN, a Texas-based crpto asset mining firm, indicates its resolve to bring the sector under its control. On 24 April, the US Securities and Exchange Commission (SEC), filed a lawsuit against GeosYN for defrauding 64 investors of more than $5.6 million in a shodd crpto mining deal. This article covers the SECs allegations against GeosYN.
SEC's Claims against Geosn Mining
As hinted above, the U.S SEC filed a lawsuit against GeosYN and its founders, Caleb Joseph Ward and Jerem George McNutt, for committing various offences including operating an unlicensed crpto mining business and defrauding the investors.
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Ward and McNutt started GeosYN in 2021 with the aim of offering crpto mining services to investors who would outsource the compans technical expertise, miner procurement as well as the crpto mining process. As expected, man individuals invested in the compan.
Now, the ke SEC accusation is that GeosYN defrauded 64 investors of over $5.6 million through a crpto mining investment deal. To achieve their goal Ward and McNutt misrepresented certain information to attract much investment.
First, GeosYN claimed that its mining business was profitable since it had contracts with electricit providers who would suppl its power requirements at lower rates than usual. However, in realit the rates at which the obtained the electricit were 40-50% above the ones the stated.
The SEC also claims that GeosYN lied to its investors about its operational activities. For example, although it entered into service agreements to purchase 1,400 mining rigs on behalf of the investors it bought less than 400 during the entire period.
In addition, the agreements between the compan and the investors stated that the could choose their crptocurrencies of choice to mine. Nonetheless, later GeosYN rejected the requests b the investors to mine other crptocurrencies other than Bitcoin.
The SEC lawsuit claims that the compan faked some documents to show that bitcoin mining was profitable. For example, the fabricated the bitcoin mining production rates and the profit generated. To cover for their misdeeds the compan purchased additional bitcoin to distribute to the investors.
Read about other SECs lawsuits: SECs Lawsuit against Terraform and Do Kwon SEC vs Uniswap Legal Battle SEC vs Ripple Case LBRY against the SEC
As an example, the compan distributed $354,500 worth of bitcoin to investors despite having mined onl BTC valued at $320,000. Their motive was to deceive the investors into believing that the crptocurrenc mining operations were profitable.
Regarding this, the SEC lawsuit stated: Geosn also distributed bogus documents to investors to create the appearance of profitabilit. Ward prepared and sent investors monthl distribution statements showing fabricated mining production rates and profits for Geosn and for the clients purported shares of the production.
Misappropriation of Investor Funds
The SEC also claims that the GeosYN founders misappropriated over $1.2 million of investor funds for personal use which include buing meals and guns as well as paing for their vacations and legal fees. The SEC lawsuit stated: Ward misappropriated approximatel $402,455.35 from Geosn in the form of cash withdrawals, bank transfers, and compan credit card charges.
It also added: McNutt misappropriated approximatel $862,095.13 from Geosn in the form of cash withdrawals, bank transfers, and compan credit card charges. According to the document McNutt used the funds to purchase goods such as construction material.
It is clear that the two Geosn founders used part of the embeled mone to fund a lavish lifestle. For example, the purchased expensive meals as well as other items like firearms and wrist watches. On top of that, the paid for entertainment services and vacation travel fees.
Unfortunatel, towards the end of 2022 a strife occurred between the two Geosn founders as Ward blamed McNutt for the collapse of the business. Due to the misunderstanding McNutt surrendered his ownership interest in the compan after signing a release agreement. As a result, in December 2022, Ward reported McNutt to criminal authorities for embelement of the compan funds. However, he did not give the details of the misappropriation of the funds and of the crpto mining rig scam.
Dwindling investor funds forced the compan to halt its operations in 2023. Ward liquidated the Geosn crpto asset wallet and remained with $57,000.
It is important to note that the SEC also accuses the defendants of infringing the anti-fraud and securities-registration provisions of the federal securities laws, where it is seeking disgorgement with prejudgment interest, and civil penalties against Ward and McNutt.
The Consequences of Geosn Mining's Actions
The SECs lawsuit against Geosn mining brings much uncertaint and mistrust in the crpto sector. First, the accusations against the compan reduces investor confidence within the crpto sector. This ma result in a decline in crpto investment activit.
Man investors ma decline to invest in the blockchain digital sector until a time when most countries, especiall the United States, adopt clear crpto regulations. This also means investor confidence will rise if crpto businesses compl with existing financial legislation.
The SEC vs. Geosn case ma trigger wide investigations in the operations of man crpto mining firms which ma disturb the proper running of some blockchains that depend on the proof-of-work consensus mechanism. As expected, man more SEC lawsuits ma come in the future.
On a brighter note, the current SEC crackdown on unethical crpto projects like Geosn ma strongl indicate that firms in the sector should compl with crptocurrenc regulations, such as the anti-mone laundering (AML) and Know Your Customer provisions.
How to protect investors from fraud schemes
Crpto projects should implement several measures to protect investors' funds. However, governments should also pla their part b introducing regulations that promote innovation in the sector et protect investors. This also implies that crpto firms should follow government legislation, including implementing Anti-Mone Laundering (AML) and Know-Your-Customer (KYC) laws.
Ever crpto firm should implement high securit measures which include two-factor authentication and robust encrption. The should also use multi-signature wallets and cold wallets to reduce hacking incidents.
Thirdl, crpto firms should educate their users on how to protect their digital assets as well as how to identif crpto criminal activities like phishing. However, the government and some other financial institutions should help in educating people about securing their digital assets and preventing scams similar to the Geosn bitcoin miner fraud.
Read also: Web3 Lost Over $53 Million to Hackers in April 2024
Lastl, different crpto industr stakeholders and other relevant plaers should cooperate to prevent crpto fraud cases. For example, exchanges, crpto firms, regulators and law enforcement agencies should collaborate to find was of dealing with crpto criminal activities. The should have communication channels and global task forces which coordinate rapid responses to fraudulent activities such as hacking. With that the will be in a better position to recover much stolen crptocurrencies.
Conclusion
On 24 April the US SEC filed a lawsuit against Geosn for operating an unlicensed business as well as misappropriating investor funds. Ward and McNutt misappropriated more than $1.2 million of investor funds. The also used falsified statements and documents to mislead individuals to invest in their crpto mining business. Meanwhile, a concerted global effort ma reduce the scope of crpto-criminal activities.
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