Genesis Mining banned from operating in South Carolina, ramifications?
Genesis Mining, a Hong Kong company, claim to be ‘the largest cloud bitcoin mining company‘.
A marketing pitch on the Genesis Mining website claims the company has “over 1,000,000” investors.
It’s super simple – Your mining rigs are already set up and running.
As soon as you’ve set-up your account you can start to earn your first coins from our bitcoin cloud mining service!
Through a mining partnership with Swiss Gold Global, on March 9th Genesis Mining was ordered to immediately cease and desist offering unregistered securities in South Carolina.
What does this mean for the company as a whole?
By identifying Genesis Mining’s mining service to Swiss Gold Global as a security, Genesis Mining’s entire business model is in jeopardy.
In addition to Swiss Gold Global, Genesis Mining provide or have provided mining services to Omnia Tech.
Outside of partnering with MLM companies, Genesis Mining offer cloud mining investment contracts to the general public.
It is believed the company’s direct cryptocurrency cloud mining offerings make up the majority of the company’s revenue.
The nature of Genesis Mining’s direct services however are identical to as those provided to the MLM industry.
Meaning that as of March 9th, Genesis Mining cannot legally operate in South Carolina.
Genesis Mining, Ltd. is permanently barred from participating in any aspect of the securities industry in or from the State of South Carolina.
Securities law in South Carolina is hardly different to that of the US on a federal level, so it’s a given that even if Genesis Mining quarantine their South Carolina investors, sooner or later the business will run into problems elsewhere across the US.
And there’s always the specter of the SEC stepping in at a federal level, banning Genesis Mining nationally.
What Genesis Mining offer is no different to any other cloud mining services provider, which is what makes the South Carolina cease and desist so significant.
Effectively, today the US has certified cryptocurrency cloud mining offerings are securities.
That doesn’t mean they are illegal per say, but it does mean that any company offering cryptocurrency cloud mining services must register itself with the SEC.
In addition to providing a safeguard against cryptocurrency cloud mining companies not doing what they represent they are, it also provides authorities with a paper-trail to follow in the event of fraud.
I’m certainly not suggesting Genesis Mining are engaged in fraud with respect to their mining operations. But with respect to securities law, it seems the days of pretending cryptocurrency is exempt from securities laws are over.
The first shot has been fired and I expect Genesis Mining will likely soon either register with the SEC, or announce they’ll no longer offer cryptocurrency cloud mining services to US investors.
If they go down the latter path (which would certainly raise suspicion), whether Genesis Mining will continue to potentially operate in violation of securities laws elsewhere in the world remains to be seen.
As at the time of publication Alexa estimates the US is the largest source of traffic to the Genesis Mining website (14%).
It follow that the US then is also likely both the largest source of investors and invested funds for the company too.
With respect to the MLM industry, I’d be extremely wary of investing in any company claiming to source mining from Genesis Mining.
To date I’m not aware of any MLM cryptocurrency that has registered itself with the SEC. Which means any MLM company offering a cryptocurrency mining contract of any kind is doing so illegally in the US.
As of yet Genesis Mining have yet to publicly respond to South Carolina ordering them to cease and desist business operations.
Update 14th March 2018 – Genesis Mining have yet to address the cease and desist on their website, however their social media team are responding to enquiries with this:
We are monitoring the situation and are currently reviewing the case with our US legal team.
We have no further update at this time but will provide one immediately once we do.
Genesis Mining has until April 8th to respond to the notice.
Update 15th March 2018 – Genesis Mining have indicated they do not intend to directly challenge the South Carolina cease and desist.
Update 27th July 2018 – Based on information submitted to the South Carolina Securities Division, Genesis Mining’s cease and desist was dismissed on July 26th.