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.
Stay tuned…
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.
This is *VERY* interesting as Genesis is in the securities industry, via a minority (roughly 30% ownership stake) in Hive Blockchain Technologies.
Recently did a $150 Million round of financing. Traded on the Toronto Stock Exchange under the ticker HIVE.
My guess is they’ve simply sold hash power to SGG and somehow are getting tied up in things. Hope this doesn’t turn ugly as the company itself is solid and well financed and not built around MLM (Genesis)
The cease and desist defines Genesis Mining’s providing of computational power for cloud cryptocurrency mining as a security.
The company has been ordered to cease providing this service (and any other security) in South Carolina.
The cease and desist came about through their partnership with Swiss Gold Global, but seeing as the company provides the same service directly to investors, effectively makes Genesis Mining’s entire business model illegal in South Carolina.
South Carolina securities law is a mirror of US federal securities law, so expect this to escalate IMO.
Genesis Mining has two options, register with the SEC and provide full disclosure or stop illegally operating in the US.
It will be very interesting. I’m going to guess they will appeal (they have the coffers and funds to do it) as they are already listed in Canada as I mentioned via a reverse play (with 30% ownership).
My guess is they will fight it and argue on the computational power argument that they are simply leasing servers and hashpower – with no guarantee of any returns.
I bet if you read their agreements they are pretty clear on that. Won’t be surprised if they are lawyering up.
I don’t see what being listed in Canada has to do with offering unregistered mining contract securities in the US.
Ditto guaranteeing returns. Securities are securities regardless of whether returns are guaranteed.
Where on earth does that “returns not guaranteed” excuse for securities violations come from ???
Cloud mining contracts are OBVIOUSLY securities. It’s a DIRECT application of Howey Test.
The original “Howey Test” was referring to a “fruit tree growing contract” that people can allegedly buy into for profit in Florida, yet the owners, who supposedly own such trees and contract Howey to care for them, have no actual rights to the tree, can’t even get onto the farm, or even know which trees are theirs, or can get access to the fruits, just the sales proceeds, if any.
It’s almost an EXACT parallel to the cloud mining contracts, not just Genesis, but ALL other cloud mining contracts. (NOT mining pools, you contribute hashes to mining pools, not $$$).
What does this mean for people in the state that have purchased mining contracts?
If they are to comply with the cease and desist order will they cancel our contracts? Is there anything we can do as citizens to fight this?
I bought mining contracts because I want to be a part of the crypto currency revolution but I do not have living arrangements that allow me to mine in my house.
To me Genesis mining means much more then profits, it allows me to help add to the security of the whole system without running a room full of graphics cards in my basement.
I know it does not matter what I think or how I feel….. however I feel that this cease and desist order is directly stealing from me not only money but also the sense that I am helping a global movement.
You’d have to contact Genesis Mining to find out what they’re doing.
They can register themselves with the SEC and continue to operate legally in the US, or refund their South Carolina investors and continue to operate illegally in the rest of the US.
I suspect if they go the latter it’ll only be a matter of time before other states and/or the SEC clamp down.
It seems the days of pretending cryptocurrency is exempt from regulation are over.
Article updated with social media response from Genesis Mining.