SEC hit with sanctions for its ‘gross abuse of power’ in Debt Box case

A United States district court has imposed sanctions on the Securities and Exchange Commission (SEC) for acting in “bad faith” in a lawsuit it brought against Debt Box.

The SEC initially filed a motion to dismiss without prejudice but that was denied by Judge Robert J. Shelby, who slammed the regulator for intentionally lying to the court about evidence it obtained to secure a temporary restraining order and freeze of Debt Box’s assets last August.

“The Commission’s above-discussed conduct constitutes a gross abuse of the power entrusted to it by Congress and substantially undermined the integrity of these proceedings and the judicial process,” Shelby said in the March 18 filing.

The “critical evidence” the SEC offered to obtained “lacked any basis” which was nonetheless advanced in “deliberately false and misleading ways,” Shelby explained.

“For the reasons explained below, the court imposes sanctions against the Commission for bad faith conduct in obtaining, maintaining, and defending the TRO, and denies the Commission’s Motion to Dismiss without prejudice to refile in accordance with the District of Utah’s Local…

— paulgrewal.eth (@iampaulgrewal) March 18, 2024

The SEC initially claimed Debt Box perpetrated a $50 million fraudulent cryptocurre scheme amid its operations as a software mining license provider. In requesting the TRO and asset freeze, the regulator claimed Debt Box had already sent $720,000 overseas and would flee to the United Arab Emirates and secretly transfer more assets with it if it was notified of the order.

The request was initially approved. However, Shelby later reviewed his initial order and concluded the SEC misrepresented evidence and that the $720,000 transfer was instead sent within the United States.

The judge in the Debt Box case has issued an 80 page opinion sanctioning the SEC for egregious misconduct in the case.

The opinion is devastating to the SEC as an institution and to the particular lawyers who committed the misconduct.

The judge made it crystal clear that the…

— MetaLawMan (@MetaLawMan) March 18, 2024

In December, Judge Shelby gave the SEC a “show cause order” — a type of court order that requires a party to justify, explain or prove something to the court. While the SEC accepted its actions weren’t “forthcoming,” the regulator argued a sanction wasn’t appropriate.

Austin Campbell, founder of Zero Knowledge Consulting says the SEC staff involved should be “terminated” and that the agency needs to undergo a reform.

“SEC lawyers should have personal liability for such conduct, in addition to the agency itself. What is described here is unconscionable for those entrusted with such authority by law.”

The SEC was also ordered to pay Debt Box’s legal fees.