Are Crypto Mining Rig Sales Guaranteed? Not so fast, say lawyers

A federal judge last week rejected a crypto firm's request to dismiss the SEC's complaint that it sold mining hardware to customers as an investment contract. And while the move has prompted some speculation on social media about its implications for such hardware, legal analysts say there is no immediate concern.

As of 2011 chargeIn the year In March 2023, a lawsuit filed in the U.S. District Court for the District of Utah alleges that Green United defrauded investors of $18 million by selling them “green boxes” that failed to issue GREEN digital tokens as promised. This is because Ethereum-based tokens cannot actually be mined, the suit says.

The ongoing case marks the latest attempt by federal regulators to crack down on “garden fraud” in the cryptocurrency industry and beyond, lawyers told Decrypt.

“They gave people money and they wanted to make a profit out of it,” said Ishmael Green, a partner at the Diaz Reus law firm. “This is a typical fraud case. It's not even true. [crypto-centric] case”

Although the lawsuit is another step in the US crypto policy and the SEC's enforcement regulation, another lawyer argued that the agency's litigation against Coinbase or Ripple is not the result of the upcoming cryptocurrency industry.

“All of these issues are important, but this one is much less important,” said Terence Young, a strategic advisor at Swan Bitcoin.

Green United's motion to dismiss the lawsuit was denied, and the case will continue to be heard in federal court.

In the complaint, the SEC alleged that Green United deposited Green Tokens into investors' accounts to “create the appearance of a successful mining operation,” even though Green Token, an Ethereum-based ERC-20 token, was not mined and never appeared in any mining-related activities.

The SEC also said that “contrary to representations made” that GREEN has no intrinsic value. [by Green United] At the time” hardware sales. Green United denied those allegations in a separate legal filing.

Ishmael Green, a partner at Diaz Reus, told Decrypt that the SEC's case is unlikely to have implications for conventional mining hardware, which users use to support networks and generate crypto rewards — like Bitcoin. In this particular case, the SEC is alleging that mining isn't actually happening on the boxes being sold to consumers.

It's good “as long as the mining is sold with the understanding that the end user will do the mining,” he explained on his understanding of the matter. “The mining in Green United was sold with an agreement that Green United would control and operate the system,” he added.

The lawsuit also alleges that Green United's so-called mining equipment — the hardware (the boxes) and software (the nodes) — constitute securities investments. That means the case could have implications for the hosted mining services that Green United purports to offer, although the SEC did not specifically mention hosted mining in the filing, according to Reed Smith counsel Hadas Jacoby. Decrypt.

In a posted statement, Green United tried to misrepresent the SEC's case as to what was actually going on, the SEC's attorneys said.Try to change the law by classifying hosted mining as security, which is the practice of many state-owned companies.” Green United also said it would offer refunds to buyers, but said “a very small number of node owners have requested refunds.”

Neither the SEC nor Green United responded to Decrypt's request.

While the SEC and Green United are still locked horns over the legality of the crypto firm's business and mining classification, the judge overseeing the case is far from making any decisions, lawyers said. Decrypt.

“The latest decision … makes a very limited decision,” Jacoby said.

According to Jacoby, the judge stated that Green United's dismissal of the suit was not a ruling in favor of the SEC's argument, but that he simply intended to hear the case instead of throwing it out.

Green United's failed attempt to dismiss the case is not surprising, as organizations often seek dismissals, according to Decrypt's attorneys. That's because filing such a motion has advantages for defendants, whether or not they violated federal securities laws.

Filing to dismiss the case is “like getting two bites at the apple for doing the bare minimum,” Green told Decrypt. ” of [defense] He gets more time, and they come up with more legal theories as to why they are innocent.

Edited by Andrew Hayward.