Philippines SEC Warns Cloud Mining Participants

News, Regulation | April 12, 2018 By:

The Philippines Securities and Exchange Commission (SEC) is planning to enforce securities regulations against cloud mining operations.

In a statement, the SEC said that cryptocurrency cloud mining contracts qualify as securities under the Howey test, and therefore should be registered with the agency. The SEC said these contracts are essentially an investment in “a common enterprise” by pooling resources to mine cryptocurrencies and paying out returns to those who participate.

Cloud mining means using shared processing power run from remote data centers to earn cryptocurrency. The operations involve a contract of pre-purchased hashpower and users buy the contracts for a lifetime or a limited amount of time.

The SEC said numerous local and foreign companies were enticing people to take part in this investment scheme with promises of daily or weekly returns in mining proceeds, as well as commissions for new recruits. The regulator warned that criminal charges may be filed against people who invite or recruit others to join or invest in cloud mining contracts or who act as salesmen, brokers, dealers, or agents of these companies.

“Since this scheme involves the sale of securities to the public, the Securities Regulation Code (SRC) requires that said securities offered are duly registered and that the appropriate license and/or permit to sell securities to the public is issued to the corporation and/or its agents, pursuant to the provisions of Section 8 of the SRC,” the SEC said. “[Offenders] will be held criminally liable under Section 28 of the Securities Regulation Code and penalized with a maximum penalty of twenty-one (21) years of imprisonment or both pursuant to Section 73 of the SRC.”

Bangko Sentral ng Pilipinas (BSP), the country’s central bank, has already allowed the use of cryptocurrencies, but only for use in remittance activities. To date, the central bank only has two registered coin exchanges engaged in remittance, Coins.ph and Rebit.ph.

Last month, Leila M. De Lima, a Filipino senator who is locked-up over drug-related charges, submitted a bill that would impose stricter penalties for crypto-related crimes, citing corruption, money laundering, and the financing of terrorism as her main concerns.