U.S. Judge Warns SEC Over 'False and Misleading' Request in Crypto Case

A federal judge threatened to sanction the SEC's lawyers after their "false" arguments prompted a court to impose a temporary restraining order on crypto firm Debt Box.

AccessTimeIconDec 1, 2023 at 11:06 p.m. UTC
Updated Jan 26, 2024 at 3:26 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

A federal judge on Thursday warned Securities and Exchange Commission (SEC) attorneys that he may sanction them for allegedly convincing a court to freeze a crypto firm's assets under "false and misleading" pretenses, a court filing shows.

According to an order issued by U.S. District Judge Robert Shelby of the U.S. District Court in Utah, the SEC's attorneys could be sanctioned for making "misleading" arguments about crypto project Debt Box's alleged efforts to transfer its assets and investors' funds overseas, leading a court to freeze the project's bank accounts. The SEC's "misrepresentations… undermined the integrity of [the case's] proceedings," in addition to causing Debt Box "irreparable harm," Judge Shelby said in an order.

Sanctions are penalties a court imposes on individuals who sign statements they know to be false or otherwise violate court procedures, according to Law.com's legal dictionary. In civil law, sanctions are usually imposed in the form of monetary fines, according to Law.com.

A federal judge first slapped Debt Box with a temporary restraining order, restricting its access to its assets, in August. However, he later dissolved the order after Debt Box demonstrated it had neither moved funds outside the U.S., nor closed its bank accounts two days before a hearing over the SEC's request to freeze its funds, Debt Box's lawyers said in a filing.

The SEC's Utah office did not immediately respond to a request for comment.

The SEC first sued Debt Box in July, alleging the company schemed to sell unregistered securities called “node licenses," beginning in 2021. Debt Box told investors the licenses would mine cryptocurrency that would increase in value, but they were actually minting the crypto themselves using computer code, the SEC alleged in its original complaint.

In Thursday's order, Judge Shelby asked the SEC's attorneys to respond to his findings that their arguments alleging Debt Box had attempted to move its funds overseas lacked context and were not factual. The regulator has two weeks to respond to the inquiry, according to the order.

Edited by Bradley Keoun.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.

Elizabeth Napolitano

Elizabeth Napolitano was a news reporter at CoinDesk.

Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.