Green United LLC has faced a significant setback in its legal battle against the United States Securities and Exchange Commission (SEC), which has accused the company’s executives of operating a fraudulent cryptocurrency mining scheme that allegedly defrauded investors of $18 million.
Defendants Wright Thurston and Kristoffer Krohn, who managed Green United LLC, were charged by the SEC for fraudulently offering unregistered securities. This accusation stemmed from their sale of “Green Boxes” and “Green Nodes,” which were marketed as devices capable of mining the GREEN token on a purported “Green Blockchain.”
In a ruling delivered on September 23, Judge Ann Marie McIff Allen concluded that the defendants did not successfully counter the SEC’s allegations regarding the nature of the securities involved. The judge stated that the “SEC has adequately alleged all necessary elements of a security in the form of an investment contract,” affirming the regulatory body’s stance on the case.
Misleading Investors
Judge Allen emphasized that Thurston’s actions created a misleading impression for investors, suggesting they were earning GREEN tokens through legitimate mining operations. However, in reality, the judge noted that token distribution was entirely at Thurston’s discretion, stating:
“In reality, they received GREEN only according to Mr. Thurston’s whim to distribute it to investors, allegedly on the basis of how many Green Boxes they owned.”
She described this conduct as a deceptive act that furthered the fraudulent scheme surrounding the Green Boxes.
The SEC’s Findings
The SEC’s complaint outlined that the hardware sold by Green United was misrepresented; the devices were, in fact, Bitcoin mining rigs that did not mine GREEN as claimed. Furthermore, the agency asserted that the alleged Green Blockchain was nonexistent.
Overall, the SEC contended that the scheme generated approximately $18 million, yet investors “did not receive” any Bitcoin mined by Green United. This highlights a significant disconnect between what investors were led to believe and the reality of the operation.
In their motion to dismiss the SEC’s lawsuit, Thurston and Krohn argued that the SEC lacked jurisdiction over digital assets, claiming that Congress had previously “considered and rejected” such authority. They also asserted that the SEC’s enforcement actions violated the Due Process Clause and the separation of powers as articulated in the U.S. Constitution.
Judge Allen dismissed this line of reasoning as well, reinforcing the SEC’s role:
“This action does not present any novel attempt at regulation by the SEC. Rather, the SEC, by this action, pursues the regulatory goals Congress set for it ninety years ago.”
This ruling not only upheld the SEC’s authority but also signaled the court’s support for established regulatory frameworks in the evolving landscape of cryptocurrency.
Next Steps in the Legal Process
Following this ruling, the SEC’s lawsuit is set to proceed to the next phase of the legal process, typically entering the discovery or trial stage. This development marks a critical point in the ongoing litigation, as both parties will prepare to present evidence and arguments in court.
Thurston and Krohn had initially filed motions to dismiss the SEC’s claims on May 19, 2024. The outcome of this case could have broader implications for the cryptocurrency industry, especially regarding the regulatory treatment of similar operations.
Green United LLC was established by Thurston in Utah and has been operational from April 2018 until at least December 2022. Krohn played a pivotal role in promoting the scheme through contractual agreements.
The developments surrounding this case serve as a cautionary tale for investors and operators in the crypto space, underscoring the importance of transparency and regulatory compliance.
