Analysis of Crypto Assets Mining Rig Eyewash Cases and Regulatory Insights

Case Review: Carefully Designed Eyewash in Crypto Assets

In 2023, the U.S. Securities and Exchange Commission filed a lawsuit against Green United LLC, accusing it of committing up to $18 million in eyewash through the sale of "Green Boxes" Mining Rigs. In September 2024, the court ruled in favor of the regulatory agency's penalty request.

The core of this eyewash lies in constructing a seemingly perfect investment trap: investors spend $3000 to purchase a Mining Rig, and are promised a monthly return of $100, with an annual return rate of up to 40%-100%. However, in reality, Green United did not use the Mining Rig for actual mining, but disguised the profits by purchasing unmined "GREEN" tokens, which ultimately lost value due to a lack of liquidity.

The company's business model is highly misleading: on one hand, it uses hardware sales as a pretense, and on the other hand, it deeply binds investors through a custody agreement. According to the agreement, the company claims it will "complete all work" to achieve the expected returns, and this "commitment + control" model has become the focal point of the case dispute.

Controversial Focus: Why is Mining Rig Trading Considered Securities?

Applicability of the Howey Test

The court analyzed the case using the four elements of the Howey test:

1. Capital Investment: Investors pay $3000 to purchase a Mining Rig, which meets the capital investment criteria.
2. Joint Venture: The returns for investors depend on the company's control and operation of the system, forming a joint venture.
3. Profit Expectations: A promise of an ultra-high return rate of 40%-100%, far exceeding the normal business investment returns.
4. Others' Efforts: The company commits to "complete all work," and investors do not need to participate in operations.

Different Perspectives in the Legal Field

Despite the court's ruling, there are still differences of opinion in the legal community regarding this case. Some experts believe that this is a ruling against specific fraudulent behavior and does not negate legitimate Mining Rig sales. Others argue that this ruling reflects the "substance over form" principle of the Howey test, emphasizing the importance of the correlation between the control of the promoters and the profit in the revenue model.

Other related cases

Recent cases such as the Ripple case and the Terraform case also provide references for the classification of crypto assets as securities. These cases show that courts will consider multiple factors such as trading scenarios, profit promises, and the market behavior of issuers when making judgments.

Future Outlook: New Directions in Crypto Assets Regulation

The Green United case reflects the challenges faced by crypto asset regulation: how to seek a balance between protecting investors and encouraging technological innovation. In the future, more judicial precedents may be needed to clarify standards, such as determining that when sales of goods come with profit promises, it must also meet conditions like decentralized operation and risk-sharing to exclude securities attributes.

With the development of encryption technology and smart contracts, traditional financial scenarios are undergoing transformation. Simply applying the Howey test is no longer sufficient to meet regulatory demands; future regulatory frameworks need to dynamically consider the specific forms of projects, balancing innovation and compliance.

The healthy development of the crypto market requires a deep integration of legal rationality and technological logic. By continuously accumulating and analyzing similar cases, the regulatory system for crypto assets will gradually improve, laying the foundation for the long-term development of the industry.