Crypto Mining Firm Marathon Digital’s Deal to Set Up New Data Centre Attracts US SEC Scrutiny

Marathon Digital recently issued 6 million shares of stock in a decision related to construction agreements for its Montana facility.

By Shomik Sen Bhattacharjee | Updated: 16 November 2021 14:57 IST

Crypto Mining Firm Marathon Digital’s Deal to Set Up New Data Centre Attracts US SEC Scrutiny

Marathon Digital said it was cooperating with the US SEC investigation

Highlights

Marathon Digital is selling $500 million worth of bonds to expand
The SEC is looking for a possible violation of federal securities law
Marathon Digital's share price has dipped since the SEC subpoena

The US Securities and Exchange Commission (SEC) has ordered cryptocurrency mining firm Marathon Digital Holdings to produce documents and communications for one of its data mining centre in Hardin, Montana. The self-mining company, among the largest in the US, submitted a detailed report of financial performance to the SEC, also known as Form 10-Q, after receiving a subpoena regarding an investigation into possible violations of federal securities law. Marathon Digital claims that the company was cooperating with the SEC's investigation but did not go into details regarding the subpoena.

In the third quarter of 2021, the SEC had ordered Marathon Digital to produce documents and communications for the Montana facility, which it arranged to develop and store with Bitcoin miners in October 2020. This could be in relation to the 6 million shares of restricted common stock issued by Marathon Digital in transactions exempt from regulation. Those shares seem to be related to agreements concerning the design and construction of the Montana-based facility.

Marathon Digital, meanwhile, is a self-mining company which means that its sole purpose is to mine Bitcoin using specialised hardware that it owns and make a profit by exchanging the mined coins for fiat. To boost its relevance, the company has announced an expansion plan through "the acquisition of Bitcoin or Bitcoin mining machines" over the coming year. The money to fund the expansion — worth $500 million (roughly Rs. 3,722 crore) has been raised through senior convertible notes, a type of offering in which investors earn interest by providing a company with cash resources.

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Now, the SEC generally looks into blockchain companies that issue cryptocurrencies, especially those that run initial coin offerings (ICOs) and offer investment contracts. Mining facilities, like Marathon Digital, do not typically fall into this category. This instance appears to be the first time that the SEC has taken action against a cryptocurrency mining company, as some cryptocurrency mining contracts can be considered under the purview of the SEC.

Investors are keeping a close eye on cryptocurrency companies in light of a shifting regulatory outlook under new SEC Chair Gary Gensler. But, as mentioned, the agency has had its focus on stablecoins, altcoins, and decentralised finance (DeFi) protocols on Ethereum and other networks.

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As per a report by CoinTelegraph, Marathon Digital's stock valuation saw an immediate drop as news of the subpoena received coverage in the media. Its share price dipped roughly 17 percent on Monday to $63.07 (roughly Rs. 4,691) on Nasdaq (MARA).

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