On June 21, 2019, the U.S. District Court for the District of Connecticut certified a class of plaintiffs alleging violations of the Exchange Act and the Connecticut Uniform Securities Act in connection with their investments in products of GAW Miners, LLC, and ZenMiner, LLC. GAW Miners and ZenMiner “purchase[d] virtual currency mining equipment from overseas manufacturers” to “resell” to customers. They also sold a variety of virtual currencies and other products – such as Hashlets, Hashpoints, HashStakers and Paycoin – that gave customers an interest in their mining activity and currencies. Stuart A. Fraser, the only remaining defendant in the case, served as the board of directors of both companies.
The complaint alleged that GAW Miners and ZenMiner misrepresented their products, including by (1) overselling their computing capacity; (2) running a Ponzi scheme by paying old investors with funds from ongoing sales; (3) promising that the value of Paycoin would not fall below US $20 per coin; and (4) representing that there was “significant financial support from outside investors, and that well-known merchants like Amazon and Wal-Mart” would accept their virtual currency.
The court concluded that the class should include individuals who acquired products through mining or by converting one product to another but not individuals who stole products or received them for free. In so doing, the court reasoned that the “purchase and sale” requirement under the federal and Connecticut securities laws should be construed broadly such that individuals who did not purchase or sell the securities in the conventional sense still had standing to be part of the class. Individuals who stole products or received them for free, however, did not suffer any injury from the alleged misconduct and, therefore, lacked standing to be part of the class.