In a recent development, United States District Judge Robert Shelby warned the Securities and Exchange Commission (SEC) in their ongoing legal battle against crypto company Digital Licensing Inc., also known as DEBT Box. The SEC faces sanctions threats as the judge questions the DEBT Box case’s accuracy, marking a significant turn in the case. The federal court in Utah, where the case is lodged, has been the center of these events.

The SEC’s lawsuit accuses DEBT Box of misleading investors and raising approximately $50 million through selling unregistered securities, referred to as “node licenses.” However, Judge Shelby’s decision highlighted serious discrepancies in the SEC’s argument, especially concerning the alleged imminent transfer of DEBT Box’s operations to Dubai, a claim that later proved inaccurate.

DEBT Box case exposes flaws in SEC conduct

Initially, the SEC, with attorney Michael Welsh at the helm, had convinced the court to freeze the assets of DEBT Box. They argued that the company was in the process of relocating to Dubai, beyond the reach of U.S. regulation. This assertion was key to the court’s granting of the asset freeze. However, it was later revealed that these claims were not based on solid evidence. In particular, there was no closure of bank accounts, and an alleged overseas transfer of $720,000 turned out to be a domestic transaction.

These revelations raised concerns about the conduct of the SEC lawyers. Misrepresenting facts in court, especially when not corrected by other team members, potentially breaches federal court Rule 11(b). This rule requires that factual claims made in court are supported by evidence. The judge’s response to these developments was to issue a “show cause order,” demanding the SEC explain why they should not face penalties for their conduct in this case.

Ripple lawyers highlight SEC bias in crypto litigation

This situation underscores the intricate nature of cryptocurrency regulation and the challenges faced in high-stakes financial litigation. A report from TRM Labs supports the SEC’s initial claim that DEBT Box may have deceived investors about their mining tokens. However, the defense team for DEBT Box has not yet stated these recent developments.

The SEC’s acknowledgment of the order and their commitment to respond within the specified two-week period set by Judge Shelby marks a critical juncture in the case. It highlights the importance of legal accountability and the necessity for accuracy in legal proceedings, especially in the rapidly evolving domain of cryptocurrency.
Ripple lawyer John E. Deaton has expressed his lack of surprise at the developments, suggesting a personal bias in the SEC’s approach to crypto cases. Ripple’s Chief Technology Officer, Stuart Alderoty, echoed this sentiment and pointed out troubling patterns in the SEC’s handling of similar cases.

Source: https://www.cryptopolitan.com/judge-critiques-sec-in-debt-box-case-shift/