Crypto-Mining Contracts are Securities

The Attorney General of South Carolina (U.S.) issued a a cease-and-desist order against the cloud mining companies Genesis and  Swiss Gold Global IncThe order purports that those mining contracts are considered securities. The Securities Commission of South Carolina claims that Swiss Gold Global acted as a broker-dealer for Genesis, but that it hadn’t registered in the state to offer securities.

Through the contracts, buyers essentially purchase an amount of computing power over a period of time that is hosted elsewhere and operated by the cloud services provider. Hence, in the Commission’s view, they “constitute investment contracts and are thus securities” under South Carolina law.

We expect other regulators to follow South Carolina’s decision and consider cloud mining contracts securities. Consequently, cloud mining services providers would need to permission from regulators such as SEC, FCA or BaFin to offer cloud mining contracts to investors. Today, cloud mining contracts are frequently sold via MLM systems and financial services providers. Very often purchasers of such cloud mining contracts have no idea what the issuers of cloud mining contracts are doing with their money. We have seen many scams and frauds in this area and thus such a regulation is highly welcome.