Court Ruling: Crypto Mining Boxes Classified as Securities in SEC Case

Green United LLC faced a significant legal setback as a federal court ruled against its attempt to dismiss an SEC civil fraud lawsuit concerning its cryptocurrency mining hardware, known as Green Boxes. The court, presided over by Judge Ann Marie McIff Allen, found that the SEC had adequately established that these boxes, along with a hosting agreement, constituted a security under U.S. law.

Background of the Case

The Securities and Exchange Commission (SEC) alleged that Green United's mining equipment and software failed to perform as promised, leading to a fraudulent scheme that misled investors who collectively invested $18 million. Instead of mining digital tokens, the company allegedly purchased unmined tokens and distributed them to create the illusion of a successful operation.

Allegations Against Green United

The SEC pointed out that Green United's cryptocurrency, called GREEN, had no real value as it was not traded in any secondary market. This lawsuit is part of a broader enforcement initiative by the SEC against various crypto-related entities accused of fraud.

In response, Green United claimed that the lawsuit lacked evidence of any victims and argued against the SEC's classification of hosted mining as a security. However, Judge Allen rejected these claims, emphasizing that the SEC had indeed demonstrated the existence of a common enterprise, a key component in defining an investment contract.

Legal Definitions and Implications

The ruling references the Howey Test, a legal standard established by the U.S. Supreme Court, which defines an investment contract based on whether individuals invest money in a common enterprise with the expectation of profits primarily from the efforts of others. The SEC's allegations, including promises of returns ranging from 40% to 100% through mining, were deemed sufficient to satisfy this test.

The case, titled SEC v. Green United, LLC, underscores the ongoing scrutiny of the cryptocurrency industry and the SEC's commitment to addressing alleged fraudulent practices.