The Philippines Securities and Exchange Commission (SEC) disclosed that it plans to implement securities regulations against cloud mining operations.
According to the SEC’s statement, the regulatory agency considers these types of contracts should be defined as “securities.”
The Philippines financial regulator warned that promoting this business model without documenting it with the SEC would be a violation.
Cloud mining operations involve a contract of pre-purchased hashpower from a remote mining operation, and users purchase the contracts for either a lifetime or a limited amount of time. Cloud mining users then get the benefits of the pool’s mining revenue if the operation is lucrative and if it is not, contracts can break even or suffer from losses.
The SEC said that after an investigation, it found out that numerous local and foreign cloud mining companies are soliciting these contracts to citizens in the Philippines.
According to the regulator these contracts pledge to pay the investor daily or weekly mining proceeds and these unregistered firms also hand out commissions for every recruit that registers.
Due to this practice, the SEC states that Under Rule 26.3.5 par. 4 of the 2015 Securities Regulation Code, these sales are defined as investment contracts. Citing the Howey Test, the SEC said the results verify that these investments are securities.
“Since this scheme involves the sale of securities to the public, the SRC requires that the said securities offered are duly registered and that the appropriate license and/or permit to sell securities to the public are issued to the corporation and/or its agents, pursuant to the provisions of Section 8 of the SRC,” the Philippines SEC stressed.
The warning continues, “Likewise, those who act as salesmen, brokers, dealers or agents of these companies 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 Commission may likewise be prosecuted.”
“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.”