The Securities Division of North Carolina has ordered Genesis Mining to Cease and Desist from offering mining contracts.
The Securities Division says such mining contracts are investment contracts and therefore securities. Genesis Mining needs to register with the SEC, they say.
They say mining contracts meet the Howey test as investments are pooled in a common enterprise with an expectation of profits primarily dependent on the efforts of Genesis Mining.
Genesis Mining is a crypto pool that allows anyone to buy hash-power, with the company then managing the miners and every aspect of it.
Dependent on difficulty increases, purchases can be risky as equipment can quickly go out of date, making projections and estimations hard to realistically calculate.
The Hong Kong based business, however, has attracted demand and has been operating for years without any problems as far as we are aware.
But the Securities Division is now seemingly extending the Securities Act 1933 to cover such contracts as investments in a common enterprise, rather than an individual purchase or renting of hashpower.
The primary reason seems to be that the hardware creates bitcoin, and therefore potentially profit, pretty much by itself. With Genesis Mining so managing storage, cooling and so on.
However, it is unclear how this is a common enterprise, rather than a selling/renting of hardware. They point to Genesis Mining pooling “investments” and re-investing profits, but that’s an activity undertaken by any business that sells goods, or provides management services such as letting agents.
By such extension of interpretation, you can argue buying an art piece which is managed and stored in an art house amounts to the art house selling securities.
With a laxer interpretation potentially covering far more than simply shares in a company in what appears to be a considerable over-reach.
But Genesis Mining does act as a custodian of the hardware, and there have been cloud mining providers who have simply run away, so the Securities Division is now seemingly exerting oversight rights.