On June 21, 2019 a Connecticut federal judge certified a class of alleged victims of a cryptocurrency mining Ponzi scheme. Class certification is another step forward in providing legitimate avenues of restitution for those who have been defrauded by cryptocurrency schemes.
The suit, led by Denis Marc Audet, alleges that GAW Miners LLC, ZenMiner LLC, and Stuart Fraser (who allegedly had control of the two companies) defrauded him and thousands like him in violation of federal securities law. Mr. Audet says that he invested in GAW Miners and ZenMiner for the purpose of obtaining a share in the profits generated by “mining”—or solving complex mathematical problems to clear transactions in—digital currency. Audet claims that the companies and Fraser engaged in various frauds, including offering to host mining computer hardware that customers could access remotely, misrepresenting computing power, and creating virtual investment accounts to prop up a failed digital currency.
The decision does not resolve any of the substantive issues being brought against the defendants. Indeed, the judge wrote in the decision that Fraser’s participation in the scheme is still unclear, stating that “the precise nature and extent of Fraser’s involvement in the companies and role in any fraud” will likely “play a central role in the litigation.”
The decision merely shows that the court is willing to recognize defrauded cryptocurrency investors as a certifiable class. Fraser claimed that there were numerous reasons the class should not have been certified, including no reliable or complete data being available for ascertaining who would meet the proposed class definition, the plaintiffs not being able to prove classwide reliance or loss causation, and no one presenting a viable method for calculating classwide damage. These arguments are broad claims that could apply to any investment in a cryptocurrency business. Ultimately, the judge stated that he agreed with some of the arguments and placed limitations on the class definition, as well as restricting the time period of only five months from August 2014 to January 2015. But, the bulk of Fraser’s arguments did not preclude class certification.
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