A US court has ruled that cryptocurrency mining funds sold by Green United are securities, satisfying the SEC’s claims.
according to Bloomberg LawGreen United did not persuade a federal court to dismiss a civil fraud lawsuit brought by the Securities and Exchange Commission, which accused the company of misleading investors.
The lawsuit says the company’s mining equipment, known as “green boxes,” were part of a securities deal.
What is the essence of fraud?
In March 2023, Utah-based mining company Green United was suspected of fraud. Committee later Charged The company violated the securities law and sold fictitious assets worth $18 million.
All details of the case are included in the SEC filing. It involved two people – the company’s founder, Wright Thurston, and the main promoter, Christopher Krohn.
Thurston and Krohn position their business as green mining. They offered their clients the opportunity to invest in equipment and promised a monthly income of up to 50%. The minimum investment was $3,000.
The agency concluded that Green United had never engaged in green mining. They directed all customer funds to Bitcoin (BTC) mining and took the profits for themselves.
“Unlike ERC-20 tokens (such as GREEN), some crypto assets like Bitcoin use the mining process to create new tokens. With these crypto assets, a new token is mined as a reward to miners who complete the algorithms with cryptographic hash functions that verify new transactions on the blockchain.” “
The SEC believes Green United defrauded its investors. The devices were sold with hosting agreements, under which the company manages green funds for investors, promising them huge profits. The U.S. District Court for the District of Utah, presided over by Judge Anne Marie McIff Allen, agreed with the SEC.
According to the SEC, Green United did not mine tokens using its hardware despite its promises to investors. As a result, the company raised $18 million from people hoping to profit from cryptocurrency mining. Instead of fulfilling these promises, it purchased unmined tokens and deposited them in investors’ accounts.
This was allegedly done to simulate a successful mining operation. According to the SEC, the GREEN mined coin has no real value.
Green United claims that no investors lost money
In response to the SEC’s allegations, Green United stated that no investor lost money and that the regulator’s claims are baseless. The company argued that the SEC was trying to rewrite the law by classifying hosted mining as securities, which they say is a common practice even among public companies.
In May, company executives move To dismiss the lawsuit filed by the Securities and Exchange Commission. Thurston and Krohn claimed that Congress had considered and rejected the Commission’s authority to regulate the cryptocurrency sector. At the same time, the SEC was allegedly “vague and inconsistent” in enforcing its actions against the industry through enforcement.
“It is unfair and fundamentally unconstitutional for a regulatory body to leave industry to guess the meaning of the law through a patchwork of disjointed data, inconsistent application, ambiguous certification, and unhelpful guidance.”
Court filing
Another argument made by Thurston and Krohn is the SEC’s unclear position on green funds. The regulator allegedly did not confirm that the “funds” were an investment contract or product.
However, the judge said that the defendants failed to prove their innocence and refute the agency’s statements.
What else does the SEC look at in securities?
In addition to mining hardware, the SEC equated the sale of NFTs to transactions in unregistered securities in August. This was revealed while media company Impact Theory was indicted for selling non-fungible tokens (NFTs) as unregistered securities.
Additionally, the SEC has notified OpenSea that NFTs on the platform may be considered unregistered securities. The regulator also ruled against Flyfish Club, LLC, for conducting an unregistered offering of cryptocurrency securities by selling non-fungible tokens.
However, attacks on NFTs are much less common than attacks on tokens. The regulator continued to claim that all cryptocurrencies except Bitcoin should be considered securities.
The Securities and Exchange Commission (SEC) clarifies the definition of cryptocurrency securities
When calling cryptocurrency securities, the SEC is guided by the Howey Test, which is a fairly old legal framework developed in 1946. Named after the landmark lawsuit filed by the SEC against W.J. Howey, this test determines whether The asset qualified as a security. This depends on factors such as initial sales and fundraising campaigns, continued promises of project development, and use of social media to promote the features and benefits of their protocols.
However, earlier in September, the SEC, in an amended complaint against Binance, stated that it never considered specific tokens as securities but took into account the full set of contracts, expectations and agreements for the sale of assets.
The statement completely contradicts the words of SEC Chairman Gary Gensler, who claimed that tokens are securities because there is a group of developers, and the public expects profits from the activities of this group. Thus, he said, cryptocurrency investors hope to benefit from the efforts of project creators — just like shareholders of public companies.
This approach explains the SEC’s attacks on Green United — the company offered to invest in funds, promising profits in return.