The main suspect is accused of selling unregistered securities, with 6,400 investors affected.
The U.S. Securities and Exchange Commission (SEC) has formally charged VBit Technologies founder Danh C. Vo for allegedly selling unregistered securities to investors under the guise of 'cloud-hosted mining' and conducting large-scale fraud.
According to the complaint filed in the U.S. District Court for the District of Delaware, Vo raised over $95.6 million from approximately 6,400 investors between December 2018 and February 2022, but misappropriated $48.5 million of that for gambling, purchasing cryptocurrency, and personal expenses for his family.
The SEC pointed out that VBit claimed to provide a "one-stop Bitcoin mining service" to the public, where investors need not operate mining machines and can simply purchase the company's "custodial contracts" to receive passive income. However, the SEC determined that such custodial contracts constitute securities because investors rely entirely on the company's operations and third-party efforts to generate profits.
The SEC investigation found that Vo's team sold custodial contracts far exceeding the actual number of operational mining machines, resulting in many investors being unable to receive expected returns and even suffering significant losses.
Funds were misappropriated for private gambling, purchasing cryptocurrencies, and under family members' names.
The SEC complaint further points out that Vo manipulated VBit's finances through absolute control, including website content, operational information, and investor backend data, and illegally transferred over $5 million from raised funds to family members such as his ex-wife, mother, brothers, and sisters.
The SEC indicates that these family members have been listed as "relief defendants" in this case and have agreed to return part of the funds, with the relevant procedures still pending court approval. Additionally, the SEC pointed out that after Vo finalized his divorce in November 2021, he left the United States with the remaining embezzled funds, significantly increasing the difficulty for victim investors to recover their losses.
VBit ceased operations after being acquired by Advanced Mining Group in 2022. The SEC's lawsuit demands that Vo return illicit gains, pay civil fines, and be prohibited from participating in any future securities offerings.
The core disputes center around overselling mining machines and false rewards; the SEC emphasizes that "third-party mining constitutes securities."
The SEC emphasizes that this case demonstrates that so-called "third-party mining" services may essentially meet the criteria of an investment contract that involves "expecting third-party efforts to generate profits," and therefore legally constitutes a securities offering.
The SEC pointed out that VBit promoted its "passive income mining," misleading investors into believing that as long as they invested funds, they could proportionally share in Bitcoin returns; however, in reality, VBit did not have enough operational mining machines to support the vast amount of contracts sold, constituting clear false sales behavior.
Many investors indeed received some returns in the early stages; the SEC believes this resembles a traditional Ponzi scheme, where funds from later investors are used to pay earlier profits, ultimately leading to significant losses for many investors.
It is worth noting that (Decrypt) points out that this case is one of the few that continues to be prosecuted after the regulatory shift in the United States. Despite the current administration significantly relaxing some crypto regulations and dismissing multiple old cases, the SEC still chooses to retain and litigate the VBit case, indicating that regulatory bodies still consider "fraudulent third-party mining services" to be a high-risk industry.
As crypto fraud cases increase, the U.S. Congress is promoting an inter-agency "anti-fraud project task force."
As the VBit case erupted, the U.S. Congress was promoting a bipartisan new bill aimed at establishing a federal-level "crypto fraud investigation task force," specifically tasked with investigating new types of fraud such as mining custodianship, managed trading, and false investment platforms.
The SEC reminds investors in its statement that any crypto investment plan claiming "stable returns," "no operational demands," or "passive income" must be approached with heightened vigilance, and it is crucial to verify whether its operational processes are transparent, whether it can provide actual proof of mining operations, and whether it is legally registered.
Regulatory authorities stated that Vo and VBit's actions are typical fraud cases and hope this case can serve as a warning to prevent more investors from being misled by the concept of "third-party mining." The subsequent proceedings will be conducted by the federal court, with Vo facing multiple charges including unregistered securities offerings, fraud, and improper misappropriation of investor funds.
'Is Bitcoin cloud mining a scam? The U.S. SEC sues VBit founder for defrauding $48.5 million.' This article was first published in 'Crypto City.'
