- The federal court presiding over the SEC’s action against cryptocurrency firm DEBT Box has ordered the SEC to explain apparent “false or misleading” remarks made by the SEC’s lawyers while seeking for a restraining order against the company.
- The SEC’s lawyers face sanctions and have fourteen days to respond before Utah’s top federal judge, Judge Robert J. Shelby.
According to a new court filing, Utah’s top federal judge has ordered the Securities and Exchange Commission (SEC) to explain claims made during its efforts to execute and maintain a temporary restraining order (TRO) against crypto company DEBT Box.
The TRO was lifted in October after Judge Robert J. Shelby, Chief United States District Judge for the District of Utah, ruled that several of the SEC’s arguments for the injunction were “false or misleading.”
The SEC claimed at the time that DEBT Box was actively moving assets overseas to avoid SEC jurisdiction, closing bank accounts in June 2023 to “move investor funds” overseas to the United Arab Emirates “for the express purpose of evading the federal securities laws.”
Shelby said in an additional comprehensive filing explaining his order that the SEC’s claim during a hearing on the TRO on July 28th that the defendants had closed 33 bank accounts in the previous 48 hours represented “the most significant evidence” that DEBT Box was attempting to shift funds overseas. That information, along with assertions from the SEC that the defendants were preventing investigators from viewing particular social media pages, convinced the judge to grant the TRO.
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However, the defendants argued in a move to dissolve the TRO filed in September that no bank accounts were stopped in June or July 2023. Rather, the thirteen bank accounts closed by the defendants were all closed on or before January 20, 2023 – and nine of the accounts were closed by banks, not the defendants.
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“There was no evidence that any bank accounts were closed in the 48 hours preceding the ex parte hearing,” Shelby said in his submission.
Shelby also considered the SEC’s characterizations of the defendants’ comments to be misleading, and he questioned the SEC’s claim that the defendants were restricting investigators from visiting certain websites, given that the SEC described its inquiry as “covert.”
Sanctions that may be imposed
Judge Shelby stated that he is “…concerned that the Commission made materially false and misleading representations” in support of the TRO. Shleby also stated that the TRO was a “extraordinary relief” that resulted in the appointment of a Temporary Receiver who was given “full power over all funds, assets, collateral, premises…choices in action, books, records, papers, and other property belonging to” DEBT Box, its affiliates, and subsidiaries.
As a result, Shelby directed the SEC to argue why sanctions should not be placed on the Commission’s lawyers, and presented additional questions to the agency about the evidence it used to support its claims in court. Shelby noted that, for instance, “If the investigation had been covert, what factual support did counsel possess and rely on when representing Defendants had ‘taken action to block SEC investigative staff from viewing their social media sites?'”
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The punishments, which Shelby specifies as “shall be limited to what is sufficient to deter repetition of such conduct,” may include monetary penalties, but may also be limited to “directives of a nonmonetary nature.” The agency’s response is due in fourteen days, according to Fortune, and a representative said, “We are in receipt of the order to show cause and will respond to the court as directed.”
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