Some definition of terms to start here. First, "crypto-mining", which is a labor-intensive process in which specialized computers effectively create new cryptocurrency tokens and add them to the block chain. Next, is a "box", or the hardware used to do that mining.

But how do you define the hosting contracts Green United LLC entered into with customers to operate mining boxes? That's the question at the center of civil fraud suit filed by the SEC against Green United.

In the case, the SEC argued that Green United's contracts constituted securities, and that the company committed fraud when it purchased unmined crypto-tokens and distributed them to their investors "to create the appearance of a successful mining operation,” notes Bloomberg Law.

In an email statement, Green United defended its actions, saying that the SEC's claim doesn't “contain a single allegation of a single victim or even an investor losing any money…Additionally, [the SEC] try to change the law by classifying hosted mining as a security, a practice performed by numerous public companies."

The case hinged on another definition, though: that of a "common enterprise". In the Supreme Court's 1946 decision of SEC vs. W. J. Howey Co., they wrote that "the test of whether there is an 'investment contract' under the Securities Act is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others; and, if that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value."

It was enough to sway Judge Ann Marie McIff Allen who sided with the SEC. “Specifically, the Complaint alleges investors could invest $3,000 to receive a Green Box, which purportedly generated returns of '$100 each month,’ ‘a 40% to 50% return,’ or ‘100%+ ROIs’ by mining a cryptocurrency called ‘GREEN,’” Judge Allen wrote. Additionally, Green United promoted their hosting contract “which provided that Green United will be ‘doing all the work’ to generate the stated return.” In other words, they promoted a common enterprise.

Crypto Assets

In 2022, as SEC legal pressures were mounting on crypto trading platform Coinbase, the firm sued the SEC to try to force it to clarify whether crypto assets are securities or not, and what regulations they fall under. Late that year, the SEC dismissed their petition noting that existing regulations already governed crypto assets. “If Coinbase wants to arrange its business in a way that does not comply with the existing regulatory framework, that does not establish a right to have the framework adapted to meet their business,” a lawyer for the SEC told the US District Court.

Verdict

Crypto remains a wild west of regulation and speculation—even with the SEC’s insistence that crypto assets always have been and always will be regulated as securities. Formalized regulation by the Administration or Congress certainly won’t come before the election, but will anything happen next year?