SEC Sues Bitcoin Mining Firm Over Hosted Investment Program

Key Points

The U.S. Securities and Exchange Commission has alleged that certain third-party Bitcoin mining hosting arrangements constitute securities, marking a significant enforcement action tied to an alleged $48 million fraud involving mining firm VBit Technologies.

In a civil complaint filed Wednesday in the U.S. District Court for the District of Delaware, the SEC accused VBit founder and former chief executive Danh C. Vo of misleading investors and selling unregistered investment contracts connected to hosted Bitcoin mining operations.

The agency stressed that its allegations apply to the structure and marketing of the contracts sold by VBit — not to Bitcoin mining itself or to individuals who operate mining equipment on their own.

Allegations focus on passive investment structure

According to the complaint, VBit sold “Hosting Agreements” to thousands of retail investors between late 2018 and early 2022. The agreements were promoted as a way to earn Bitcoin mining income without owning, operating, or maintaining mining equipment.

Investors were told they were purchasing mining rigs that would be pooled with others and run entirely by VBit. Returns were described as proportional to each investor’s share of computing power, measured by hashrate, with VBit responsible for sourcing equipment, managing facilities, and distributing mining proceeds.

The SEC alleges that nearly all of VBit’s customers entered into these agreements, which were offered in tiered packages ranging from lower-cost plans to higher-priced options that purportedly included multiple mining rigs.

SEC says equipment claims did not match reality

The complaint alleges that VBit did not have sufficient mining equipment to support the number of hosting agreements it sold.

In 2020, VBit is accused of selling hosting contracts covering more than 3,300 mining rigs while operating fewer than 1,000 machines. In 2021, agreements allegedly covered more than 8,400 rigs, while the company operated roughly 1,643.

As a result, the computing power promised to investors could not be delivered, according to the SEC.

The agency further alleges that investors never owned or controlled specific mining equipment and had no role in operational decisions. Instead, they were entirely dependent on Vo and VBit to generate any returns.

Why the SEC considers the contracts securities

Based on those allegations, the SEC argues the hosting agreements meet the legal definition of investment contracts under federal securities law. The agency says investors contributed money to a common enterprise and were led to expect profits derived primarily from the efforts of VBit and its founder.

Because the contracts were not registered with the SEC and were sold without required disclosures, regulators say the arrangements violated securities registration and anti-fraud provisions.

Alleged misuse of investor funds

The complaint also accuses Vo of misappropriating investor money.

According to the SEC, between December 2020 and November 2021, Vo transferred approximately $48.5 million of investor funds into personal accounts, distributed millions to family members, and used investor money for cryptocurrency trading.

The agency further alleges that investor account balances were misrepresented through an online portal that displayed hypothetical mining returns unrelated to actual Bitcoin production. Any Bitcoin that was mined was allegedly controlled solely by Vo.

Alleged departure, asset transfers, and account shutdowns

According to the complaint, Vo left the United States in 2021 after learning that the SEC was investigating VBit’s operations. Around the same period, VBit announced that it had been sold to a company called Advanced Mining Group.

The SEC alleges that the sale did not reflect a genuine transfer of business operations and instead served to give investors the impression that mining activities were continuing.

By mid-2022, customers were unable to log into their accounts or withdraw funds. The SEC says investors lost access to account information and received no further updates on the status of their mining contracts or assets.

What the SEC is asking the court to order

In its complaint, the SEC is asking the court to permanently bar Vo from violating federal securities laws and to force the return of money it says was improperly taken from investors. The agency is also seeking financial penalties and an order that would prevent Vo from serving as an officer or director of any public company.

The case has been filed as a civil action, and the SEC has requested that the claims be decided by a jury.

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