SEC’s “Absolutely Shocking Behavior,” According to Ripple CTO David Schwartz


On November 30, 2023, U.S. District Judge Robert J. Shelby of the District Court of Utah issued an order that might result in sanctions against SEC attorneys. These possible penalties are a result of providing “misleading” statements regarding the cryptocurrency company Debt Box, which is accused of transferring assets and investor cash abroad, leading to a court decision to freeze the bank accounts of the business.

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The following was written by Judge Shelby in the “order to show cause”:

After carefully reviewing the Commission’s filings and statements at the ex parte TRO hearing, the court is concerned the Commission made materially false and misleading representations that violated Rule 11(b) and undermined the integrity of the proceedings. The context is crucial—the representations were made by a federal agency seeking an ex parte TRO and while later seeking to preserve the TRO.

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A court order known as a “Order to Show Cause” mandates that a party show up in court and provide justification for why a particular course of action should not be followed. It is frequently employed to make sure a party justifies their actions or inactions on a problem at hand, or when the court requires more information before making a decision on a particular issue.

A TRO is a “Temporary Restraining Order” in legalese. It is a kind of court order meant to keep someone or something safe from specific actions until a complete trial can take place. A TRO is usually used to stop irreversible damage or to keep things as they are until the court can hear more thorough arguments in the case.

When there is a risk of serious harm or injustice while waiting for a regular judicial procedure, a TRO is frequently requested. It could be used, for instance, to halt the destruction of a structure, the transfer of property, or to cease intimidation or acts of violence directed towards an individual.

Typically, obtaining a TRO entails filing an application with the court and, frequently, providing a written declaration outlining the urgent need for protection. The court next determines if the situation justifies issuing the order. Generally, a TRO is granted ex parte—that is, without providing the opposing party with notice—but it is only valid temporarily, until a full hearing can be held during which both parties can submit their claims. Following this hearing, the court may opt to dismiss the TRO if it determines that it is no longer necessary, or it may decide to convert the order into a preliminary injunction, which has a longer duration.


A sanction in civil law is a fine or other kind of enforcement imposed to make up for an injustice or guarantee that the law is followed. Generally, a court will impose sanctions, which can take several forms based on the jurisdiction and the nature of the legal matter.

In August, Debt Box was subject to a temporary restraining order that restricted access to its property. But according to the company’s legal team, the order was dissolved since Debt Box did not demonstrate any bank account closures or transfers of funds outside of the United States prior to a hearing on the SEC’s request to freeze its funds.

The SEC filed a lawsuit against Debt Box in July, claiming that the company misled investors out of roughly $50 million by selling unregistered securities, or “node licenses,” beginning in 2021. The SEC asserted that these licenses were used to create bitcoin using computer code, despite being fraudulently advertised as instruments for mining cryptocurrencies, which are becoming more and more valuable.


The recent ruling by Judge Shelby exposed disparities in the SEC’s case. At first, the SEC persuaded the judge to put DEBT Box’s assets on hold by claiming the business was moving to Dubai, which was outside of US jurisdiction. This assertion was eventually refuted because there was no bank account closure and the $720,000 purportedly transferred overseas was in fact domestic.


The defense attorney has not yet responded, despite a TRM Labs report supporting the SEC’s main accusation that Debt Box misled investors regarding token mining. Shelby has given the SEC two weeks to respond, and the SEC has acknowledged receipt of the order.

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David Schwartz, CTO of Ripple, responded angrily to the events, calling the SEC’s activities in requesting the emergency order “absolutely shocking behavior.” He accused the SEC of intentionally distorting facts to secure the order beforehand.

John E. Deaton, a lawyer for Ripple, and Stuart Alderoty, the company’s chief legal officer, have both questioned the SEC’s strategy in cryptocurrency lawsuits. In addition to Alderoty pointing out concerning trends in the SEC’s behavior, Deaton recommends issuing a subpoena to the agency.

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