Between November 2021 and December 2022, Geosyn executives reportedly entered into agreements to purchase and operate mining equipment on behalf of clients, charging a fee for their services. However, according to the SEC complaint, the company charged customers significantly higher costs than what it had negotiated with suppliers of cheap electricity. Furthermore, Geosyn allegedly failed to deliver on its promise to purchase and activate most of the mining equipment.
The SEC also alleged that Geosyn misled investors by only allowing them to mine Bitcoin, despite previously stating that they could choose other cryptocurrencies. The company reportedly made payments to Bitcoin investors to create the illusion of profitability, using false documents to support these fictitious profits.
The SEC claimed that Geosyn was supposed to pay investors $354,500 in Bitcoin, but only had $320,000 available. To bridge the gap, McNutt purchased more bitcoins and transferred them to Ward, who then distributed them to investors. The regulator further accused Geosyn executives of embezzling around $1.2 million, which they allegedly spent on personal luxuries, including a family trip to Disneyland.
In October 2022, McNutt reported the embezzlement to authorities and left the company. Meanwhile, Geosyn faced financial difficulties and Ward emailed “IOUs” to investors. The SEC stated that Ward promised to file for bankruptcy in June 2023, but this never happened. The regulator is now seeking the return of stolen funds and a fine from the company’s co-founders.
This lawsuit comes on the heels of the SEC’s recent demand for the recovery of $5.3 billion from Terraform Labs and its founder Do Kwon, following the collapse of the Terra-Luna project in 2022.