Citrus Groves in the Cloud : Is Cryptocurrency Cloud Mining a Security?

Cloud mining of blockchain cryptocurrency is a growing industry that has largely flown under the radar of regulators, who thus far tend to focus on initial coin offerings. Cloud mining is an economic arrangement whereby a person pays another person or entity to engage in cryptocurrency mining on their behalf and receives the transaction fees, cryptocurrency or a portion thereof that is generated from such mining efforts. This arrangement raises securities law concerns, as such arrangements can be viewed as “investment contracts” under federal securities laws. The implications are significant; cloud mining contracts deemed to be securities must be registered with the Securities and Exchange Commission or otherwise eligible for an exemption from registration (such as a private placement). Issuers and other participants involved in the sale of unregistered securities in violation of the Securities Act of 1933 may be subject to liabilities and other investor remedies under state and federal securities laws, including private rights of action and rescission. Moreover, the anti-fraud provisions of the Securities Exchange Act of 1934 can impose liability with respect to any purchase or sale of a security—registered or not