The promoter of Green United, accused of involvement in an $18 million crypto mining fraud, is seeking to appeal a decision made in a U.S. district court, arguing that the U.S. Securities and Exchange Commission (SEC) incorrectly applied securities laws in its case. Kristoffer Krohn, the promoter in question, filed a motion on Oct. 24 asking the Tenth Circuit Appeals Court to review the case and decide whether the SEC’s allegations that Green United sold unregistered securities hold merit.
Krohn’s legal team argues that the SEC wrongly classified the purchase of Green United’s mining equipment as an investment contract under securities laws, which would imply it was sold as a security. Specifically, Krohn challenges the SEC’s interpretation that by buying the company’s “Green Boxes,” purchasers were participating in a “common enterprise,” a key element of the Howey test, which determines whether a transaction qualifies as a security.
Krohn’s appeal suggests that it would be more efficient and just for the appeals court to resolve this issue before the case progresses further, potentially saving both time and costs associated with a lengthy litigation and trial process. His appeal aims to have the legal question about the application of securities laws decided at the appellate level before continuing with the lower court proceedings.
SEC’s Lawsuit Against Green United
The SEC filed its lawsuit against Green United, Wright Thurston (the company’s founder), and Kristoffer Krohn in March 2023, accusing them of defrauding investors through the sale of unregistered securities. The SEC claims that the company misled investors by promising that the “Green Boxes” they purchased would be used to mine the GREEN token on a purported “Green Blockchain,” but instead, the boxes were used to mine Bitcoin, and investors never received the promised tokens.
In September 2023, Utah District Court Judge Ann Marie McIff Allen ruled that the SEC had sufficiently alleged that the Green Boxes were sold as unregistered securities under the Howey test. This decision followed Krohn’s failed attempt to dismiss the lawsuit, with the judge agreeing that the SEC’s claims were plausible.
Krohn, however, maintains that the SEC’s argument that Green Box purchasers were investing in a “common enterprise” and expecting profits from the operation is flawed. He pointed out that the investors did not receive any stake in Green United’s profits, which he argues underscores that the sale of the hardware was simply a transaction for computer equipment, not an investment in a security.
The Appeal and Its Implications
Krohn’s motion for an interlocutory appeal focuses on a legal question that has yet to be definitively resolved by the Tenth Circuit: whether the sale of mining equipment can qualify as the sale of a security in the context of a blockchain or cryptocurrency-related business. Krohn contends that, given the early stage of crypto technology, reasonable judges could differ in their interpretations of what constitutes an investment contract in this context.
If Krohn’s appeal is granted, the case could be reviewed by a three-judge panel from the Tenth Circuit, and it may take months before a final decision is rendered. If the appeals court rules in Krohn’s favor, it could significantly impact the SEC’s approach to regulating crypto-related activities, particularly in terms of what constitutes a security in the blockchain and mining sectors.
Krohn and Thurston have also previously argued that the SEC lacks authority over the cryptocurrency industry, suggesting that Congress had specifically considered and rejected the idea of granting the SEC regulatory control over digital assets. This broader contention could further influence how the courts interpret the SEC’s powers in crypto-related cases.
As the case progresses, the outcome may have broader implications for how cryptocurrency businesses structure their operations and the extent of the SEC’s regulatory authority over the rapidly evolving blockchain space.
