Federal Judge Rebukes SEC For Treatment Of Crypto Firm
A federal judge has reprimanded the Securities and Exchange Commission (SEC) over its treatment of a crypto firm, expressing concern the agency had made “materially false and misleading representations” in order to freeze millions of dollars in assets belonging to the project.
Case Background
The case, filed in Utah federal court, concerns a firm named Digital Licensing Inc., or DEBT Box. The SEC had filed a complaint this summer, alleging that the project had defrauded investors out of nearly $50 million by selling unregistered securities called “node licenses.”
Unfair Action
In its initial move against the firm, the SEC obtained a temporary restraining order and asset seizure through an ex parte application, without informing the crypto firm of the proceedings. This type of one-sided proceedings is uncommon and typically reserved for situations where a government agency fears that notifying the defendant could result in evidence destruction or assets being taken overseas.
Upholding the Manifestation of Justification
U.S. District Judge Robert Shelby initially granted the SEC’s request for the restraining order based on the agency’s claims that the crypto company was actively closing bank accounts and trying to move the firm overseas. However, this turned out to be untrue, with the judge stating the SEC had possibly deceived the court in its description of the facts used to justify the earlier orders.
SEC faces Usual but Rare Sanctions
Shelby’s order demanded the SEC to provide reasons why the court should not punish the agency for its behavior. Such orders are typically directed at private parties, making this case quite uncommon. The order included a list of questions asking the SEC to respond to specific examples of apparent falsehoods. The order comes at a time when the SEC is already embroiled in a number of high-profile lawsuits against prominent crypto companies.
SEC Response
An SEC spokesperson responded, stating, “We are in receipt of the order to show cause and will respond to the court as directed.” The agency has two weeks to respond to Shelby’s order.
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