Green United LLC has lost its bid to dismiss a lawsuit from the United States Securities and Exchange Commission, which has accused its executives of operating a fraudulent crypto mining scheme that raked in $18 million from investors.

Defendants Wright Thurston and Kristoffer Krohn — who operated cryptocurrency mining firm Green United LLC — were accused by the SEC of fraudulently offering securities in March after selling “Green Boxes” and “Green nodes” marketed as miners for the GREEN token on the “Green Blockchain.”

In the Sept. 23 decision, Judge Ann Marie McIff Allen said the defendants failed to rebut the SEC’s securities allegations, stating that the “SEC has adequately alleged all necessary elements of a security in the form of an investment contract.”

Judge Allen declined to dismiss the SEC’s fraud claims against Thurston, claiming his actions created the “illusion” that investors were earning GREEN tokens through mining.

“In reality, they received GREEN only according to Mr. Thurston’s whim to distribute it to investors, allegedly on the basis of how many Green Boxes they owned.”

“[This] constitutes a deceptive act in furtherance of the Green Box fraud.”

An excerpt from the defendants’ motion to dismiss. Source: PACER

The SEC also alleged that the hardware sold by Green United were actually Bitcoin ( BTC ) mining rigs that didn’t mine GREEN as advertised, and the purported blockchain never existed.

The alleged scheme raised approximately $18 million, and investors “did not receive” any Bitcoin mined by Green United, the SEC said.

In its motion to dismiss, Thurston and Krohn also claimed that the SEC had no authority over digital assets as Congress already “considered and rejected” its authority and that such enforcements violate the Due Process clause and separation of powers as laid out in the US Constitution.

However, Judge Allen also knocked back this argument:

“This action does not present any novel attempt at regulation by the SEC. Rather, the SEC, by this action, pursues the regulatory goals Congress set for it ninety years ago.”

The SEC’s lawsuit will now move on to the next part in the legal process, typically the discovery or trial stage.

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Thurston and Krohn filed motions to dismiss the SEC’s lawsuit on May 19.

Green United was founded by Thurston in Utah from April 2018 until at least December 2022, while Krohn contractually promoted the scheme.

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