Regulator warns vs investing in cloud mining contracts

The Securities and Exchange Commission (SEC) has issued an advisory against investing in cloud mining contract and to take the necessary precautions in dealing with cloud mining companies in April 2018.

The regulator described cloud mining as a process of acquiring cryptocurrency through the utilization of shared mining equipment located in an off-site or a remote data center, with the purchase of equipment being funded by investors who avail of cloud mining contracts.

SEC has identified cloud mining contract investment by the following characteristics:

  • 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 fiat currency or cryptocurrency to avail 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
  • They offer affiliate commissions for every recruit that registers and invests using the referring investor’s link.

Further investigation shows that there are numerous local and foreign cloud-mining entities who solicit these cloud-mining contracts in the Philippines. In accordance with Rule 26.3.5 par. 4 of the 2015 Implementing Rules and Regulations of the Securities Regulation Code (Republic Act 8799), an investment contract has been defined as a contract, transaction or scheme, whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.

Those who act as brokers, salesmen or agents of these companies in enticing people to invest in the investment scheme being offered by these cryptocurrency mining companies may be prosecuted and held criminally liable under Section 28 of the Securities Regulation Code and penalized with a maximum penalty of 21 years of imprisonment or both pursuant to Section 73 of the SRC. The same thing goes for those who invite other people to invest in this venture or offer investment contracts or securities.

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