The U.S. SEC has temporarily halted its fraud lawsuit against Texas-based crypto mining firm Geosyn Mining and its executives after federal prosecutors filed similar criminal charges against the company’s CEO and two former executives.
The decision, disclosed in a court filing, comes after Geosyn CEO Caleb Joseph Ward and former operating chief Jeremy George McNutt surrendered to authorities and appeared in court.
Allegations of Fraud and Misuse of Investor Funds
The SEC originally filed its lawsuit against Geosyn in April 2024, accusing Ward and McNutt of orchestrating a $5.6 million fraud scheme.
According to the agency, the executives misled over 60 investors between November 2021 and December 2022 by making false claims about their mining operations.
A recently unsealed FBI affidavit from Feb. 10 revealed further details about the fraudulent activities. It alleged that Ward, McNutt, and Jared McNutt, Geosyn’s former sales manager, diverted customer funds for personal expenses instead of fulfilling their business promises.
Jared McNutt was not named in the SEC’s lawsuit but is facing separate legal action.
According to the complaint, Geosyn failed to disclose to new investors that previous clients had never received their purchased mining machines.
The company also did not perform the services outlined in its offering documents, misleading investors into believing they were participating in a legitimate mining operation.
Fake Reports and Ponzi-Like Tactics
Authorities claim that Geosyn executives engaged in deceptive tactics to conceal their fraudulent activities. They reportedly sent fake mining performance reports to customers, making it appear as though their rigs were generating income. In reality, many of the mining machines were never purchased or activated.
In an alleged Ponzi-like scheme, the executives used funds from new clients to purchase Bitcoin and transfer it to earlier investors. This practice gave the illusion that mining operations were profitable when, in fact, they were not functioning as advertised.
Additionally, prosecutors found that the company falsely claimed to have secured cost-effective electricity contracts. In reality, the energy costs were 40-50% higher than what was presented to investors.
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Internal Conflict and Whistleblowing
The case took an unexpected turn when Ward reported McNutt for alleged embezzlement. However, authorities later discovered that Ward himself had also misappropriated company funds, raising questions about his true motivations for reporting his former colleague.
The SEC’s complaint also highlighted that Geosyn failed to purchase 400 out of the 1,400 mining rigs it had agreements for and never brought most of the purchased machines online.
Legal Battle and Political Implications
The legal proceedings against Geosyn’s executives come at a time when the regulatory landscape for cryptocurrency is shifting.
Former President Donald Trump has expressed intentions to ease regulatory oversight on the crypto industry, leading to speculation that cases like Geosyn’s may be affected by policy changes.
In response to a request from Judge Mark Pittman in January, Ward and McNutt argued that the SEC’s lawsuit should be paused, citing potential changes in enforcement priorities under Trump’s leadership.
They suggested that the SEC’s approach to crypto-related cases might shift, affecting how their case is handled.
However, the SEC dismissed this argument, stating that the case does not involve crypto regulation but rather financial fraud. The agency emphasized that neither the administration’s stance on crypto nor the SEC’s newly established Crypto Task Force should influence the proceedings.
While the SEC’s lawsuit is currently on hold, the federal criminal case against Geosyn’s executives is moving forward. If convicted, Ward and McNutt could face severe penalties for defrauding investors and misusing funds.
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