Defendants in $18m fraud lawsuit argue SEC lacks authority over crypto

Two individuals charged with orchestrating an alleged fraudulent cryptocurrency mining scheme amounting to $18 million have moved to dismiss the lawsuit filed against them by the United States Securities and Exchange Commission (SEC).

On May 19, Wright Thurston and Kristoffer Krohn each filed separate motions to dismiss the lawsuit filed by the SEC.

Thurston and Krohn, along with their associated entity Green United LLC, were sued by the SEC in March for allegedly engaging in deceptive practices by selling “Green Boxes” and “Green nodes” as miners for the GREEN token on the purported “Green Blockchain.”

In their motion to dismiss, both defendants maintained that the SEC does not possess authority over the digital asset ecosystem, contending that Congress had previously rejected granting such power to the regulatory agency. They further asserted that the SEC’s definition of cryptocurrency has been ambiguous and inconsistent, accusing the regulator of resorting to “regulation by enforcement.”

Thurston and Krohn argued that the SEC failed to demonstrate that the Green Boxes constituted securities offerings or investment contracts as claimed in the March complaint.

The SEC had alleged that the hardware sold by Green United was bitcoin mining rigs that did not mine the GREEN token as advertised and that the associated blockchain was fictitious.

The regulator stated that approximately $18 million was raised through this purported scheme, and investors did not receive any of the Bitcoin that Green United claimed to have mined.

SEC chair Gary Gensler has consistently emphasized the commission’s jurisdiction over cryptocurrencies and has previously stated that most crypto assets, excluding Bitcoin, are considered securities under the Howey test.

The crypto community will closely watch the outcome of this motion to dismiss as it could potentially set a precedent regarding the SEC’s regulatory authority over digital assets.