SEC Facebook

The Commission
has detected that
certain
individuals or groups of persons are enticing the
p
ublic
,
through a popular social media platform
or
in
their own independent website
s
,
to invest in
so
–
called
cloud mining contracts
.
Based
on
an initial investigation
conducted by the Department, entities and persons offering
cloud mining cont
r
acts
advertise, promote and define
cloud mining
a
s
a
process of
acquiring
cryptocurrency
through the utilizat
ion of
shared
mining equipment located
in
an off
–
site
or a
remote
datacenter
, with the purchase of equipment being
funded by investors who avail of cloud mining
contracts.
Further
,
the investigation shows that
there
are numerous
local and foreign cloud
–
mi
ning
companies
who
solicit
these
cloud
–
mining
contracts
in the Philippines
and are usually characterized
by the following
:
1.
They require registration
of
an
online account in a website or a mobile platform;
2.
They require the payment of a
n
initial
fee
or inve
stment
either in fait currency or
cryptocurrency
to
avail of their
offered mining contracts
;
3.
T
hey 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
cry
ptocurrency
wallet
or
fund account
;
and
4.
They offer affiliate commissions for every recruit that registers and
invests
using the
referring investor’s link.
Under
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 (collectively “contract”), whereby a person invests his money in a common
enterprise and is led to expect profits primarily from the efforts of others.
Applying the
Howey Test
as
discussed
by the Honorable Supreme Court
in
Power Homes
Unlimited vs. SEC
(G.R. No. 164182, February 26, 2008),
a cloud mining contract is an investment
contract falling within the purview of the term “securities” as defined by
law.
First,
t
here is
investment of money
because
an investor is expected
to part
with his hard
–
earned money in order to
enter into these contracts.
Second, t
here is an investment in
a common enterprise
because
the party
soliciting investments
pool the fund
s collected to
purchase
mining equipment
for use in the profit
–
making activity. Third, there is
expectation of profits
because the investor is given the promise of a
return in the form of fiat
currency
or cryptocurrency. Lastly, the profits are
generated f
rom the
efforts of others
b
ecause the cloud mining company undertakes to perform all the profit
–
generating
activities and distributes all the profits
to all investors
after deducting mining costs.
Since
th
is
scheme involves the sale of securities to the p
ublic, the SRC requires that the said
securities offered are duly registered and that the appropriate license and/or permit to sell securities
to
Manila
the public are issued to the corporation
and/or its agents, pursuant to the provisions of Section 8
of the
SRC
.
Likewise, t
hose 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 and held criminally liable
under Section 28 of the Securities Regulation Code
and penalized with a maximum penalty of
twenty
–
one
(21) years
of
imprisonme
nt or both pursuant to Section 73 of the SRC.
Accordingly, those who invite or recruit other people to join or invest in this venture or offer
investment contracts or securities to the public may be held criminally liable or accordingly
sanctioned or pena
lized in accordance with the Supreme Court decision in the case of SEC vs. Oudine
Santos (G.R. No. 195542, March 19, 2014).
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.
Should you have any information regarding the operations of these
persons and
entities,
please call the Enforcement and Investor Protection Department (EIPD) at telephone number (02)
818
–
6047.
For the guidance of the public