As a seasoned analyst with over two decades of experience in financial markets and regulatory compliance, I find this case particularly intriguing. The U.S. court’s decision to side with the SEC against Green United highlights the ongoing struggle between cryptocurrency companies and regulators to define the boundaries of this rapidly evolving industry.
The U.S. court’s decision indicates that Green United’s crypto mining devices are classified as securities, aligning with the Securities and Exchange Commission’s assertions.
Based on Bloomberg Law’s report, Green United was unable to persuade a federal court to throw out a civil fraud case filed by the Securities and Exchange Commission. The SEC had alleged that Green United deceived investors with false information.
The legal document states that the company’s mining devices, commonly referred to as “Green Boxes,” were involved in a financial deal related to securities.
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What is the essence of the fraud?
Back in March 2023, I found myself at the center of a storm when Green United, a mining firm based in Utah, was under scrutiny for alleged fraudulent activities. Subsequent investigations led by the Commission found the company guilty of breaching the Securities Act and peddling fictitious assets valued at an astounding $18 million.
All the details of the case were included in the SEC filing. It featured two people — the company’s founder, Wright Thurston, and the leading promoter, Kristoffer Krohn.
As a forward-thinking crypto investor, I’ve come across Thurston and Krohn who marketed their venture as eco-friendly mining operations. They invited me to invest in the necessary equipment, promising a monthly return of up to 50%. The minimum investment required was $3,000.
The agency concluded that Green United had never been involved in green mining. They directed all client funds to mining Bitcoin (BTC) and took the profits for themselves.
differential point between ERC-20 tokens (like GREEN) and some cryptocurrencies, such as Bitcoin, is the method of creation. While ERC-20 tokens are pre-mined, crypto assets like Bitcoin are produced through a process called mining. Miners who successfully solve complex algorithms with cryptographic hash functions that validate new transactions on the Blockchain are rewarded with newly mined tokens.
According to the SEC, Green United allegedly deceived its investor base. The equipment in question was marketed alongside hosting contracts, under which Green United would maintain Green Boxes on behalf of investors, assuring them substantial returns. Judge Ann Marie McIff Allen of the U.S. District Court for the District of Utah concurred with this assessment by the SEC.
Based on SEC reports, Green United failed to deliver on their promise of using hardware for token mining, as stated to investors. Contrary to expectations, the company received $18 million from investors seeking crypto mining profits. However, rather than mining the tokens themselves, they acquired unmined tokens and transferred them into investor accounts.
It is claimed that this action was taken to create an illusion of a profitable mining business. As stated by the SEC, the “mined” currency from GREEN did not hold any real worth.
Green United claims no investors lost money
In response to the Securities and Exchange Commission’s accusations, Green United maintains that no investor suffered financial losses and considers the regulator’s claims unfounded. The company contends that the SEC is attempting to redefine legal norms by categorizing hosted mining as a security, which they claim is standard practice among publicly-traded companies.
In May, as a crypto investor, I found myself following the news closely regarding the company’s response to the SEC’s lawsuit. The executives chose to dismiss the lawsuit, asserting that Congress has previously considered and declined to grant the Commission the authority to regulate the crypto sector. Simultaneously, there were allegations that the SEC had been unclear and inconsistent in its approach towards enforcing regulations within our industry. This inconsistency was evident in their enforcement actions against various players in the crypto market.
It’s not right or legal for a regulatory body to allow an industry to interpret the law based on a confusing mix of scattered statements, inconsistent enforcement, ambiguous testimonies, and unclear instructions.
Court filing
Thurston and Krohn contend that the Securities and Exchange Commission (SEC) has not clearly defined its stance regarding the Green Boxes. Essentially, the SEC hasn’t yet stated whether these “boxes” are considered as investment contracts or products.
Instead, the judge found that the defendants did not succeed in demonstrating their lack of guilt or contradicting the agency’s assertions.
What else does the SEC consider securities?
In August, the SEC compared the sale of NFTs to deals involving unregistered securities, a revelation made during the prosecution of the Impact Theory media company for offering non-fungible tokens without proper registration.
Moreover, the Securities and Exchange Commission (SEC) informed OpenSea that certain NFTs on their platform might be regarded as unregistered securities. Similarly, Flyfish Club, LLC was penalized by the SEC for illegally offering cryptocurrency securities through the sale of non-fungible tokens, without proper registration.
As a crypto investor, I’ve noticed that compared to tokens, NFTs encounter far fewer attacks. Yet, regulators persistently argue that the majority of cryptocurrencies, other than Bitcoin, fall under the category of securities.
SEC clarifies the definition of securities for cryptocurrencies
When the Securities and Exchange Commission (SEC) classifies cryptocurrencies as securities, it relies on the Howey Test – a legal framework that has been in existence since 1946, originating from a significant lawsuit against W.J. Howey. This test helps decide whether an asset fits the definition of a security. The decision is made by evaluating aspects like the initial sale and fundraising efforts, ongoing assurances about project growth, and promotions on social media highlighting the functionalities and advantages of its underlying protocols.
Earlier in September, the SEC, in an amended lawsuit against Binance, clarified that it did not view certain tokens individually as securities. Instead, it looked at the entirety of the contracts, investor expectations, and agreements for selling these assets.
The statement completely contradicted 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 argued that crypto investors hope to profit from the efforts of the project creators — just like shareholders of public companies.
This method lays out why the SEC targeted Green United – the firm proposed investing in Boxes, guaranteeing returns to investors.
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2024-10-02 05:22