Key points
Regulators say the company promised mining profits while operating far fewer machines than it sold.
Court documents say the investors did not control the mining equipment and were completely dependent on the company.
The SEC alleges that founder Danh C. Vo transferred about $48 million of investor funds to personal accounts.
By mid-2022, investors were unable to access the accounts or withdraw funds, according to the complaint.
The U.S. Securities and Exchange Commission has alleged that certain third-party Bitcoin mining hosting agreements constitute securities, marking a major enforcement action linked to an alleged $48 million fraud involving mining company VBit Technologies.
In a civil lawsuit filed Wednesday in the U.S. District Court for the District of Delaware, the SEC accused VBit founder and former CEO Danh C. Vo of misleading investors and selling unregistered investment contracts related to hosted Bitcoin mining operations.
The agency emphasized that its accusations apply to the structure and marketing of contracts sold by VBit, not to Bitcoin mining itself or to people 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 income from Bitcoin mining without owning, operating or maintaining mining equipment.
Investors were told they were purchasing mining rigs that would be bundled with others and managed entirely by VBit. Returns were described as proportional to each investor’s share of computing power, measured by hashrate, with VBit being responsible for acquiring equipment, managing facilities, and distributing mining revenues.
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 allegedly included multiple mining rigs.
SEC says team claims don’t match reality
The complaint alleges that VBit did not have enough mining equipment to support the number of hosting deals it sold.
In 2020, VBit was accused of selling hosting contracts covering more than 3,300 mining rigs while operating fewer than 1,000 machines. In 2021, the agreements reportedly covered more than 8,400 platforms, while the company operated approximately 1,643.
As a result, according to the SEC, the computing power promised to investors could not be delivered.
The agency further alleges that the investors never owned or controlled specific mining equipment and had no role in operational decisions. Instead, they were completely dependent on Vo and VBit to generate profits.
Why the SEC considers contracts securities
Based on those allegations, the SEC maintains that the hosting agreements meet the legal definition of investment contracts under federal securities law. The agency says that investors contributed money to a common company and were made to expect profits derived mainly from the efforts of VBit and its founder.
Because the contracts were not registered with the SEC and were sold without required disclosure, regulators say the deals violated securities registration and anti-fraud provisions.
Alleged misuse of investor funds
The complaint also accuses Vo of embezzling investors’ money.
According to the SEC, between December 2020 and November 2021, Vo transferred approximately $48.5 million of investor funds to personal accounts, distributed millions to members of his family, and used investor money to trade cryptocurrency.
The agency further alleges that investors’ account balances were misrepresented through an online portal that displayed hypothetical mining returns unrelated to actual Bitcoin production. Any Bitcoin mined was allegedly controlled solely by Vo.
Alleged departure, asset transfers and account closures
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.
As of 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 contracts or mining assets.
What the SEC is asking the court to order
In its lawsuit, the SEC asks the court to permanently enjoin Vo from violating federal securities laws and forcing the return of money it claims was improperly taken from investors. The agency is also seeking financial sanctions and an order barring Vo from serving as an officer or director of any public company.
The case was filed as a civil action and the SEC has requested that the claims be decided by a jury.
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