The U.S. Securities and Exchange Commission (SEC) has filed charges against Texas-based cryptocurrency mining and hosting company Geosyn, and its co-founders Caleb Ward and Jeremy McNutt.
The charges allege their involvement in a fraud scheme totaling $5.6 million. According to the SEC’s complaint filed on Wednesday, the company and its founders misled over 60 investors between November 2021 and December 2022.
The SEC claims that Geosyn’s representations regarding miner purchases and operations were largely false. The company is accused of not informing new investors that previous investors had not received the promised mining machines nor the services outlined in Geosyn’s offering documents.
Additionally, the SEC claims that Ward and McNutt falsely represented having favorable contracts with electricity providers, while actual costs were reportedly 40-50% higher than what was disclosed to investors. The complaint also details that the co-founders misappropriated $1.2 million of investor funds for personal expenses, including family vacations, guns, and watches.
To conceal these operational issues and financial shortfalls, the SEC alleges that Geosyn and its co-founders made periodic bitcoin distributions to investors. Despite Geosyn generating only about $320,000 from mining activities, it distributed a total of $354,500 in bitcoin to investors. To cover the shortfall, McNutt reportedly purchased additional bitcoin personally.
The situation deteriorated in late 2022 when Geosyn’s funds dwindled, leading to McNutt’s resignation after Ward accused him of embezzlement. Following his departure, Ward allegedly informed investors via email that owed bitcoin payments would be made later.
“Geosyn told investors it would purchase, maintain, and operate crypto asset mining machines and then distribute mined crypto assets, such as bitcoin, to the investors for a fee. The SEC complaint further alleges, however, that the defendants: (1) falsely claimed that Geosyn had favorable contracts with electricity providers which enabled Geosyn to operate the mining machines profitably,” the statement reads.
The SEC is seeking a permanent injunction against all defendants, requiring them to repay the misappropriated funds and imposing additional penalties for their actions. The agency clarifies that each defendant acted knowingly or with severe recklessness.
