SEC Fights Motions to Dismiss Fraud Charges Against Blockchain Startup

News | May 8, 2024 By:

On Wednesday, April 24, 2024, the Securities and Exchange Commission (SEC) filed legal papers in the US District Court for the District of Utah opposing motions to dismiss its fraud charges against a blockchain startup and its founders.

The SEC initially filed a complaint on March 3, 2023, against Green United, LLC, a company that claimed to operate a decentralized power grid using blockchain technology. The complaint also named Wright W. Thurston, the company’s founder and CEO, and Kristoffer A. Krohn, an individual who promoted Green United’s offerings.

According to the SEC’s filing, between 2018-2022, Green United raised over $18 million from investors by selling computer hardware units called “Green Boxes” and software called “Green Nodes.” These products were touted as machines that could mine a new cryptocurrency called “GREEN” through a process similar to Bitcoin mining. Investors were told holding the boxes and nodes, or opting to let Green United remotely manage and operate them, would lead to profits from mining GREEN tokens.

However, the SEC alleges Green United and its executives committed securities fraud by making false statements about the company’s operations. It claims Green United did not actually have a functioning decentralized power grid or blockchain, the GREEN tokens did not truly exist or have value, and the boxes/nodes did not mine GREEN as advertised but rather only mined Bitcoin. Thurston is also accused of concealing that GREEN tokens had not initially been created for six months after the first box sale.

Krohn allegedly hid from early investors that GREEN could not immediately be sold while promoting the investment opportunity and its potential rapid returns. Both Thurston, as CEO, and Krohn are charged specifically with violating securities laws around registration, material misstatements, and deceptive conduct regarding the offer and sale of unregistered securities.

In March 2023, Thurston and Krohn filed motions to dismiss the SEC’s complaint, which the court partially granted with leave for the SEC to amend. On February 21, 2024, the SEC filed an amended complaint with additional details on the fraud allegations. Last March, Thurston and Krohn filed renewed motions to dismiss, arguing the amended complaint still fails to properly allege an “investment contract” security existed or sufficiently plead securities fraud with particularity as required.

In its opposition filing, the SEC maintains it has plausibly alleged the sale of investment contracts, pointing to precedent that boxes/nodes bundled with management services by the issuer constitute securities. It also claims adequate specifics have been provided on the fraudulent misstatements and deception employed, including facts showing Thurston’s and Krohn’s scienter.

The legal battle will continue as the court considers whether to dismiss or allow the SEC’s case to move forward to discovery. A final ruling could impact how securities laws apply to similar blockchain-based investment opportunities involving cryptocurrency mining in the future.

Please contact BlockTribune for access to a copy of this filing.