Utah judge denies SEC motion to dismiss DEBT Box case, imposes sanctions

A federal judge ruled Monday that the Securities and Exchange Commission acted in bad faith and must pay penalties, including attorney fees and costs, stemming from a case filed against crypto startup DEBT Box.

Utah U.S. District Court Judge Robert Shelby said the SEC should pay legal costs stemming from a temporary restraining order imposed on Digital Licensing Inc., doing business as DEBT Box , Last year. According to the court order, the judge also rejected the SEC’s decision to dismiss the case without prejudice. The case involved the judge criticizing the SEC’s misleading statements and the agency admitting that it had failed to meet expectations.

Throughout the 80 pages orderJudge Shelby criticized the SEC’s conduct in obtaining the temporary restraining order (TRO), which included an asset freeze and a court-appointed receiver to take control of the company.

“It expressly took advantage of its special status as a federal agency – reminding the court that it had obtained this relief several times over the past ten years – to demonstrate that it could be trusted when seeking this enormous exercise of judicial authority,” Shelby said.

The court granted the TRO, leading to frozen assets and “upended lives,” Shelby said.

“Ultimately, once defendants were informed and given an opportunity to respond, every purportedly factual pillar the Commission had built to demonstrate irreparable harm collapsed under intense scrutiny.” , Shelby said. “This was not just a simple imprecise statement or inadvertent inaccuracy. Every bit of support offered by the Commission in seeking the TRO – and then later reiterated in defense of the TRO – turned out to be a combination of false, misinterpreted and misleading.”

An SEC spokesperson said the agency was reviewing the decision, in an emailed statement to The Block.

The motion to dismiss

The SEC filed a request for dismiss the suit without prejudice in January, meaning the regulator could have refiled its case. Judge Shelby denied this on Monday.

The second admitted in late December, he made inaccurate statements and said he “failed to meet” expectations for accuracy and candor in court. Judge Shelby had criticized the agency’s lawyers and ordered the SEC to explain “false or misleading” statements after saying the company was trying to move assets overseas to escape the regulator’s jurisdiction.

The SEC’s lawsuit against DEBT Box alleges that it defrauded thousands of investors of at least $49 million by offering customers so-called “node licenses” to receive revenue from operating 11 tokens, although they have never been mined.

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