The SEC has decided that crypto mining devices sold by Green United LLC are securities.
Green United couldn’t convince a federal court to dismiss the civil fraud case brought by the SEC, which accused the company of misleading investors.
The lawsuit claims that the company’s mining hardware, known as “Green Boxes,” was part of a securities deal.
The alleged fraud
The devices were sold along with hosting agreements, where the company would operate the Green Boxes for investors, promising them huge returns.
The U.S. District Court for the District of Utah, led by Judge Ann Marie McIff Allen, agreed with the SEC.
Allen explained that the SEC had successfully argued that these Green Boxes, combined with the hosting agreements, constituted securities under law.
The SEC accuses Green United of scamming its investors. According to them, Green United didn’t actually mine any digital tokens with its equipment, despite promises made to investors.
The company collected $18 million from people hoping to profit from mining cryptocurrencies. Instead of delivering on those promises, it purchased unmined tokens and deposited them into investors’ accounts.
This was allegedly done to fake a successful mining operation. The currency being mined, called “GREEN,” had no actual value, according to the SEC.
It wasn’t being traded in any secondary market, which made it worthless. This kind of scam has become familiar in recent SEC enforcement actions, where fraudulent activity is disguised under the banner of crypto.
Green United rebuts SEC’s claims, says no investor lost money
In response to the SEC’s claims, Green United pushed back, saying that no investors lost money and that the SEC’s accusations were baseless.
The company argued that the SEC was trying to rewrite the law by classifying hosted mining as a security, something they say is a common practice even among public companies.
The SEC’s lawsuit is based on the Howey test, a legal standard that determines whether something is a security. This test comes from a 1946 Supreme Court ruling in SEC v. W.J. Howey Co.
The question is whether an investor is putting money into a “common enterprise” with the expectation of making profits through the efforts of someone else.
The SEC claims that Green United’s setup fits this definition perfectly.
