Crypto Defendants Fight Back: "SEC Has No Power Over Us!" in $18M Fraud Lawsuit

Introduction:

Two individuals accused of running an alleged fraudulent $18 million crypto mining scheme are seeking a dismissal of the lawsuit filed against them by the U.S. Securities and Exchange Commission (SEC). Wright Thurston and Kristoffer Krohn have filed motions to dismiss, arguing that the SEC lacks authority over the cryptocurrency ecosystem and that Congress has rejected the agency's jurisdiction over crypto. The SEC had sued Thurston, Krohn, and Green United LLC in March, alleging fraudulent securities offerings related to the sale of "Green Boxes" and "Green nodes" marketed as miners for the GREEN token on the "Green Blockchain."

Challenging SEC's Authority:

Wright Thurston and Kristoffer Krohn, along with their alleged firm Green United LLC, are pushing for the dismissal of the SEC lawsuit, asserting that the SEC does not possess authority over the digital asset ecosystem. In their motions to dismiss, the defendants argue that Congress has specifically considered and rejected the SEC's jurisdiction over cryptocurrency, highlighting that the agency has abandoned proposed legislation or rulemaking in favor of litigation to establish regulatory frameworks.

Moreover, Thurston and Krohn contend that the SEC has failed to demonstrate that the Green Boxes sold by Green United constitute securities offerings or investment contracts, as claimed in the SEC's complaint. The defendants challenge the SEC's allegations that the hardware sold by their company were Bitcoin mining rigs that did not mine the GREEN token as advertised. They also dispute the SEC's assertion that the purported Green Blockchain never existed.

Allegations and Regulatory Stance:

According to the SEC's lawsuit, the alleged scheme orchestrated by Thurston, Krohn, and Green United raised approximately $18 million. The regulator claims that investors did not receive any of the Bitcoin (BTC) that was supposedly mined by Green United. The SEC has accused the defendants of fraudulently offering securities through the sale of Green Boxes and Green nodes, marketed as miners for the GREEN token on the Green Blockchain.

SEC Chair Gary Gensler has consistently emphasized the Commission's authority over cryptocurrency and its view that most crypto assets, excluding Bitcoin, qualify as securities under the Howey test. The SEC has been actively pursuing enforcement actions against crypto-related entities and projects that it believes fall under its regulatory purview.

Defendants' Arguments and Legal Implications:

Thurston and Krohn's motions to dismiss the SEC lawsuit assert that the agency's authority is limited and that it does not extend to the cryptocurrency industry. They argue that the SEC's attempts to establish a coherent regulatory framework have been unsuccessful, as evidenced by its reliance on litigation rather than proposed legislation or rulemaking.

Furthermore, the defendants contend that the SEC has failed to establish that the Green Boxes and Green nodes sold by their company were securities offerings or investment contracts. They dispute the SEC's claims that the hardware did not function as advertised and that the Green Blockchain was non-existent. Thurston and Krohn are seeking the dismissal of the lawsuit on these grounds.

The outcome of this case carries implications for the SEC's regulatory authority over the cryptocurrency ecosystem. If the court were to rule in favor of the defendants and dismiss the lawsuit, it could potentially challenge the SEC's jurisdiction in prosecuting similar cases involving crypto-related activities.