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SEC Flags Bitcoin Hosting Agreements as Securities in Major Fraud Case

The U.S. Securities and Exchange Commission (SEC) has identified certain third-party Bitcoin mining hosting agreements as potentially being classified as securities.

This determination arises from a federal lawsuit linked to an alleged $48 million fraud involving VBit Technologies, a mining firm.

According to the SEC's complaint, VBit’s founder, Danh C. Vo, misled numerous investors by selling unregistered investment contracts tied to Bitcoin mining operations.

The SEC asserts that these “Hosting Agreements,” offered between late 2018 and early 2022, were marketed to retail investors as a hassle-free method for earning passive income through Bitcoin mining.

Typically, Bitcoin mining necessitates the operation of specialized computers that validate transactions in exchange for newly minted coins.

However, the SEC claims that Vo misrepresented the investment process, where investors believed they owned mining rigs managed entirely by VBit.

Investigations revealed that VBit sold far more hosting agreements than it had the apparatus to support, effectively failing to deliver promised returns.

For instance, in 2020, the firm sold agreements for over 3,300 mining rigs while actually operating fewer than 1,000.

The SEC’s complaint also highlights Vo’s alleged manipulation of investor account balances, which were fictitious and unrelated to actual Bitcoin production.

As a result, the SEC is pursuing civil penalties, disgorgement, and a permanent ban on Vo from serving as an officer in public companies, underscoring the seriousness of the fraud allegations.