SEC Sues VBit for Nearly $100 Million Fraud, Defines Mining Machine Custody as Securities, Drawing the Final Red Line for the Crypto Industry and Potentially Impacting 2026 Mining Compliance
(Background: RWA Agreement Ondo Finance Explosive Insider: BlackRock and Morgan Stanley Entering the Real-World Asset Space)
(Additional Context: U.S. SEC Ends Investigation of Ondo Finance “No Charges Filed”! $ONDO Surges Past $0.5)

Table of Contents

• Ponzi Scheme Behind the Glamorous Packaging
• Hawkeye Test: Why Custody Becomes Securities
• Mining Compliance Strategies

The U.S. Securities and Exchange Commission (SEC) recently issued a major regulatory announcement. According to the SEC official statement, on December 17, a lawsuit was filed against Bitcoin mining company VBit Technologies and founder Danh C. Vo, accusing him of defrauding nearly $95.6 million under the guise of “mining machine custody.” The SEC explicitly stated for the first time that these types of custody agreements are essentially securities, leaving a clear red line for crypto mining.

Ponzi Scheme Behind the Glamorous Packaging

According to the full complaint, VBit raised funds from over 6,400 investors from 2018 to 2022, claiming “buy mining machines, relax and earn Bitcoin,” but in reality, nearly half of the funds were diverted for personal use. Danh Vo not only gambled with the funds, bought cars, and engaged in private crypto investments, but also transferred over $5 million to family members. More critically, the number of custody contracts sold by VBit far exceeded the actual mining machines they possessed. When new funds could not cover promised returns, the entire fund pool quickly dried up.

The SEC pointed out that Vo had left the country in November 2021 and is currently suspected to be hiding in Vietnam. Investors are left with only decommissioned mining dashboards and hard-to-recover funds. This case, combining over-issuance, black-box operations, and cross-border fleeing, has instantly become one of the most shocking warning cases in crypto mining.

Hawkeye Test: Why Custody Becomes Securities

What truly moves the market nerves is the legal classification. The SEC cited the “Howey Test” with four elements, determining that investors are not simply buying hardware but are investing funds into a joint enterprise with the expectation of profits derived from others’ efforts. Investors have no control over mining switches, electricity strategies, or hash power direction; profits depend entirely on VBit’s operations.

In the complaint, the SEC emphasized:

“Investors’ fortunes are completely tied to the VBit mining pool. Investors put in funds expecting to earn profits through the professional efforts of others.”

This statement equates cloud mining with traditional securities’ joint investment features, bringing mining-related services into the securities law radar for the first time. In fact, similar business models and capital structures—commoditizing hash power, selling it, and raising future funds from potential investors—are common among many mining companies.

Mining Compliance Strategies

In response to the latest enforcement actions, legitimate mining companies are immediately differentiating their practices. Mitchell Askew, an executive at Blockware Intelligence, emphasized that lawful custody models should allow clients to own the mining equipment, hold the private keys, and independently decide hash power direction. Custodians only provide electricity, cooling, and maintenance, charging fixed fees, and do not participate in profit sharing. Under this setup, “equipment leasing” and “securities investment” are fundamentally different.

Industry concerns include that if policies are applied indiscriminately, classifying all custody agreements as securities, it will force mining farms to incur expensive compliance costs, potentially excluding small and medium miners. Meanwhile, the precedent set by VBit’s opaque operations also compels mining farms to strengthen information disclosure and asset segregation mechanisms.

The market generally expects that Trump has already relaxed restrictions on digital assets, but the VBit case remains a ready-made example that courts can cite. Mining operators will inevitably need to assess risks and decide how to package their products accordingly.