SEC warns public on ‘cloud mining’ deals

The Securities and Exchange Commission (SEC) has issued a public warning against investing in or selling unregistered investments in the form of “cloud mining” contracts that ride on the global cryptocurrency hype.

“Cloud mining,” as defined by its proponents, refers to the process of acquiring digital tokens or cryptocurrencies by using shared mining equipment located in an offsite or a remote data center, with the purchase of equipment being funded by investors who avail themselves of cloud mining contracts.

Based on an initial investigation conducted by the SEC’s enforcement and investor protection department (EIPD), certain individuals or groups of persons are enticing the public to invest in such unregistered investment contracts using social media or their own independent websites.

The SEC said the local and foreign cloud-mining companies that solicit these cloud-mining contracts in the Philippines were usually characterized by the following:

• They require registration of an online account in a website or a mobile platform;

• They require the payment of an initial fee or investment either in legal tender (fiat) currency or cryptocurrency, to avail themselves of their offered mining contracts;

• They promise to pay the investor daily or weekly mining proceeds, usually equivalent to a percentage of the initial fee or investment, directly to the latter’s cryptocurrency wallet or fund account, and

• They offer affiliate commissions for every recruit that registers and invests using the referring investor’s link.

Such a cloud mining contract functions like an investment contract and could thus be categorized as “securities” as defined by law, the SEC declared.

Since this scheme involves the sale of securities to the public, the SEC said the Securities Regulation Code (SRC) would require the appropriate license or permit before any party could sell securities to the public.

Likewise, the SEC stressed that those who act as salesmen, brokers, dealers or agents in selling or convincing people to invest in the investment scheme being offered by these cryptocurrency mining companies—including solicitations and recruitment through the internet without the necessary license or authority from the SEC—could be prosecuted, held criminally liable and penalized with a maximum penalty of 21 years of imprisonment.

“In view thereof, the public is hereby advised to stop investing in these kinds of unregistered investment activity and to take the necessary precautions in dealing with these cloud mining companies,” the SEC said.

The SEC encouraged those who have any information regarding the operations of these persons and entities to call the SEC’s EIPD at telephone number 818-6047.