The US Securities and Exchange Commission has asserted in a recent lawsuit that third-party Bitcoin mining hosting services may constitute securities offerings—a stance that has drawn strong opposition from an industry executive.
On Wednesday, the SEC filed a lawsuit in Delaware federal court against Bitcoin mining firm VBit and its founder, Danh Vo, alleging fraud and the misappropriation of approximately $48 million in investor funds between 2018 and 2022. According to the complaint, VBit sold more mining hosting agreements than the number of mining rigs it actually operated.
The SEC contends that VBit’s hosting agreements qualify as investment contracts and are therefore securities, arguing that they satisfy the criteria established under the Howey test.
The SEC argued that investors who purchased VBit’s hosting agreements expected to earn passive income and relied entirely on the company’s efforts to generate profits, as they neither possessed nor controlled the mining rigs they were said to have purchased.
The agency’s position reflects a lingering approach from its enforcement strategy under the Biden administration, which crypto advocates have criticized for broadly classifying many cryptocurrency-related products and businesses as securities.
SEC alleges VBit failed to meet industry standards
According to the SEC, VBit’s Bitcoin mining hosting operation deviated significantly from standard industry practices. Investors allegedly lacked the ability to monitor their mining rigs, while the company maintained complete operational control.
The regulator also alleged that VBit directed investor hashrate into a mining pool it controlled—a factor the SEC said was central to its determination that the hosting agreements constituted securities.
In its filing, the SEC stated that investors’ fortunes were intertwined, as each participant’s potential returns depended on the overall performance of VBit’s mining pool. The agency added that recruiting additional investors increased the pool’s mining power and, in turn, the likelihood of generating more Bitcoin.
Industry executive disputes SEC’s interpretation
Mitchell Askew, head of Blockware Intelligence, pushed back on the SEC’s claims, stating that pooling hashrate is not standard practice among hosted Bitcoin mining providers.
“Hosted Bitcoin mining simply means a client purchases a computer and electricity,” Askew said. “There’s no pooling of capital, no profit-sharing, and no reliance on a promoter to generate returns. Under the Howey test, that is very clearly not a security.”
“I don’t think this affects the hosted mining industry at all. Legitimate hosted mining has no resemblance to an investment contract, and this theory has no legs to stand on.”
The SEC did not immediately respond to a request for comment.
The agency’s assertion that hosted Bitcoin mining can qualify as a securities offering stands out as one of the more notable regulatory positions under the Trump administration, which has generally sought to take a more industry-friendly approach.
While several high-profile cryptocurrency investigations initiated during the Biden administration have since been dropped, numerous lawsuits related to alleged fraud remain active.
