A federal judge last week rejected a request by a cryptocurrency company to dismiss an SEC claim that sales of alleged mining hardware to customers constituted investment contracts. And while the move prompted some speculation on social media about the impact on such hardware, legal analysts say there is no immediate reason for concern.
According to lawsuitA lawsuit filed in March 2023 in the U.S. District Court for the District of Utah alleges that Green United forked out $18 million to investors by selling a “green box” that failed to mine a digital token called GREEN as promised. It is said that he defrauded the That's because Ethereum-based tokens couldn't actually be mined, the lawsuit alleges.
The ongoing lawsuit is the latest attempt by federal regulators to root out “garden-breed fraud” within the cryptocurrency industry and beyond, lawyers said. decryption.
“They were giving people money and trying to profit from it,” said Ishmael Green, a partner at law firm Diaz Reus. “This is a classic case of fraud. It’s not even real. [crypto-centric] case. “
While the case is another step in the grand scheme of the SEC's approach to US crypto policy and enforcement regulation, another lawyer argued: decryption That said, it won't have as significant an impact on the future of the crypto industry as the government lawsuits against Coinbase and Ripple.
“All of these incidents are important, but this one is less important,” said Terrence Yang, strategic advisor at Swan Bitcoin.
Given that Green United's motion to dismiss the case was denied, the case will continue to be heard in federal court.
In its complaint, the SEC alleges that Green United “in order to create the appearance that the mining operation was successful” despite the fact that the GREEN token, an Ethereum-based ERC-20 token, could not be mined. He claims to have deposited GREEN tokens into his account. It did not come from mining-related activities at all.
The SEC also claims that GREEN “contrary to its representations has no realizable value.” [by Green United] At the time the hardware was released.” However, Green United denied these allegations in separate legal filings.
Diaz-Reus partner Ishmael Green said: decryption The SEC's lawsuit is unlikely to affect common mining hardware that users operate to support networks and generate rewards for cryptocurrencies like Bitcoin, the SEC said. In this particular case, the SEC alleges that no mining was actually occurring on the boxes sold to users.
Based on his own understanding of the matter, he clarified that “as long as mining rigs are sold with the understanding that the end users will be mining, there is no problem.'' He added: “With Green United, mining rigs were sold with the agreement that Green United would manage and operate the system.”
The lawsuit also alleges that Green United's so-called mining equipment, both hardware (boxes) and software (nodes), constitutes securities investments. This could potentially impact the hosted mining services that Green United purports to provide, even though the SEC does not explicitly mention hosted mining in its complaint. That means, said Hadas Jacobi, Reed Smith's attorney. decryption.
In a posted statement, Green United sought to portray the SEC's lawsuit as a false depiction of what is actually happening, with an SEC attorney writing, “We are trying to change the law by classifying hosted mining as a security, something that many publicly traded companies do.'' Green United also offered refunds to buyers, but added: Only a small number of node owners requested it.”
Neither the SEC nor Green United responded. decryptionRequest for comment from.
The SEC and Green United remain at loggerheads over the legitimacy of the cryptocurrency company's operations and the classification of its mining equipment, but the judge overseeing the case is far from making any decisions, lawyers said. . decryption.
“Recent decisions…have made much more limited judgments,” Jacobi said.
Jacobi said the judge's denial of Green United's motion to dismiss the case was not a ruling in favor of the SEC's claims, but rather a declaration that the agency simply intended to hear the case rather than abandon it.
Lawyers interviewed said Green United's failed attempt to dismiss the case was not surprising since it is common for companies to seek terminations. decryption. Filing such claims typically benefits the defendant, regardless of whether federal securities laws were actually violated.
Filing to dismiss the case “is like getting two bites at the apple for doing the bare minimum,” Green told Decrypt. ” [defense] It gives them extra time to come up with additional legal theories as to why they are innocent. ”
Edited by Andrew Hayward
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