Bitcoin scam charges made against companies in US

Bitcoin is still unregulated in many countries

Two US Bitcoin mining firms have been charged with running a scheme that duped more than 10,000 investors.

GAW Miners and ZenMiner are accused of selling shares worth $20m (£13.3m) in mining hardware called Hashlets.

Bitcoins are "mined" when computers solve equations that verify user transactions made with the currency.

But it is claimed that Hashlets did not have enough processing power to carry out the number of verifications required to properly reward investors.

GAW and ZenMiner were owned by Homero Joshua Garza, who has been charged in a Securities and Exchange Commission (SEC) complaint filed in a federal court in Connecticut.

"As alleged in our complaint, Garza and his companies cloaked their scheme in technological sophistication and jargon, but the fraud was simple at its core: they sold what they did not own, misrepresented what they were selling, and robbed one investor to pay another," said Paul Levenson, director of the SEC's Boston regional office.

'Ponzi scheme'

The SEC has alleged that Mr Garza's companies were engaged in what's known as a Ponzi scheme, in which investors were owed more than the mining machines were able to make and pay out to them each day.

As a result, it is claimed that most were never able to recoup the value of their initial investments, while a few made some profit.

Mr Garza was said to be "disappointed" by the charges, according to a statement from his lawyer, Marjorie Peerce,

Any further comments, she added, would be made through the court process.

Bitcoin blues

Generally, fraud in the Bitcoin world is on the increase, according to Richard Howlett, a partner at London law firm Selachii, which advises clients on legal issues relating to crypto-currencies.

"There are several high-profile Bitcoin exchanges I am aware of which appear to be Ponzi schemes," he said.

Mr Howlett added that Bitcoin users sometimes also encountered difficulties when trying to retrieve currency stored in online "exchanges" - a bit like personal banks for Bitcoins.

On occasion, a rogue exchange might shut down overnight and claim it was hacked, said Mr Howlett. Those running the exchange would then disappear with the clients' funds.

Since 2014, Mr Howlett's firm has been contacted by more than 1,000 people affected by rogue exchanges and mining companies.

"Until the industry is regulated, this pattern will continue to increase," he added.