- The US Securities and Exchange Commission (SEC) sued Bitcoin mining company VBit and its founder for allegedly defrauding investors by overselling mining Hosting agreements.
- The SEC classified VBit’s hosting agreements as securities under the Howey test, citing investors’ expectations of Passive income and lack of control over mining rigs.
- The SEC claimed VBit did not follow industry standards, retaining full operational control and pooling hashrate among investors.
- Industry representatives argued that typical hosted Bitcoin mining does not involve pooling or profit-sharing and should not be considered securities.
The US Securities and Exchange Commission (SEC) filed a lawsuit on Wednesday in a Delaware federal court against VBit, a Bitcoin mining company, and its founder, Danh Vo. The SEC accused VBit of fraud and misappropriating approximately $48 million from investors between 2018 and 2022 by selling more mining hosting agreements than actual mining rigs available.
The SEC claimed that VBit’s hosting agreements qualify as investment contracts and are thus securities. According to the agency, these agreements meet the criteria set by the Howey test, which defines securities based on an investment with an expectation of profit derived from the efforts of others. The SEC emphasized that investors purchased hosting agreements expecting passive income, without possessing or controlling the mining rigs themselves.
The complaint highlighted that VBit operated below industry standards. Investors were unable to monitor their individual rigs, while the company maintained full operational control. Additionally, VBit directed the mining hashrate into a pool it controlled. The SEC noted that investors’ profits were linked to the performance of this larger pool, and recruiting more investors increased the overall chance of earning Bitcoins.
Mitchell Askew, head of Blockware Intelligence, disputed the SEC’s position, stating that pooling hashrate is not standard practice for hosted Bitcoin mining services. He explained that legitimate hosted mining typically involves clients purchasing computing hardware and electricity without any pooled capital, profit-sharing, or dependence on promoters for returns. According to Askew, this does not meet the criteria of an investment contract under the Howey test.
The SEC’s stance represents one of the more significant classifications of Bitcoin mining hosting agreements by regulatory authorities. While the SEC’s approach to cryptocurrency regulation has evolved, with some investigations being dropped, fraud-related lawsuits remain active.
For further details, the SEC’s complaint is available here.
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