A Connecticut jury has found that digital assets linked to cryptocurrencies are not securities in what a defense lawyer called a world-first verdict.
GAW Miners investor Stuart Fraser was cleared of liability in a fraudulent operation co-opted by ZenMiner LLC on Monday.
“It’s the first case that we know of where a jury addressed whether cryptocurrency products were securities,” one of the defendant’s representatives, Daniel Weiner from Hughes Hubbard & Reed LLP, told Law360.
The case against GAW Miners has been underway since 2017 when co-founder Homero Joshua Garza pled guilty to wire fraud. This left Fraser, a 41% investor in GAW, as the sole remaining defendant in the case.
Initially, GAW sold physical mining hardware but soon teamed up with ZenMiner to offer remote management software that allegedly allowed customers to control their mining hardware online.
According to the plaintiffs, the two companies never actually owned as much equipment as they initially claimed. Earlier in the case, both GAW and ZenMiner were found in default.
Unable to fulfill customers’ orders, the two companies introduced “hashlet contracts,” which entitled their customers to a share of the profits from the company’s crypto mining profits.
However, in 2017, GAW was found to have sold far more hashlets worth of computing power than it actually had in its computing centers. Rather, the company was using the money from new customers to pay off older customers.
The jury decided that none of GAW’s four products, including promissory notes called “hashpoints,” tokens called “Paycoin” and virtual wallets called “Hashstakers,” were considered unregistered securities. Fraser was also found to be not liable.
Although the United States Securities and Exchange Commission described hashlets as securities in its previous case against Garza, the jury in the most recent case against Fraser found that customers actively controlled their hashlets, meaning they could not be considered a passive investment.