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SALT LAKE CITY — A U.S. district court has imposed sanctions against the Securities and Exchange Commission for its conduct and actions taken against Utah-based crypto firm DebtBox.
Judge Robert Shelby ruled that the basis for SEC actions against DebtBox, which included freezing assets and obtaining a temporary restraining order following allegations the company engaged in a $50 million cryptocurrency scheme, were based on faulty legal arguments. In his March 18 ruling, Shelby also reprimanded the SEC for engaging in misconduct and failing to correct mistakes even after they were made known to investigators.
"The commission's ... conduct constitutes a gross abuse of the power entrusted to it by Congress and substantially undermined the integrity of these proceedings and the judicial process," Shelby wrote in his 80-page ruling. "The court makes clear that, while it might hope the commission would hold itself to a higher standard of conduct, the court does not impose an elevated standard here. It simply expects the commission to comport with the same duties and obligations as every other litigant coming before the court."
Shelby said the evidence used by the SEC to obtain the temporary restraining order against DebtBox "lacked any basis in fact" but the agency "nonetheless advanced that evidence in deliberately false and misleading ways."
Shelby ordered the SEC to compensate DebtBox for its attorneys' fees associated with the lawsuit as well as costs "for all expenses arising from the (temporary restraining order) and appointment of the receiver — to include payment of all the receiver's costs and fees."
In an August filing, the SEC alleged DebtBox, as well as four company principals and over a dozen other named defendants, were connected to a cryptocurrency scheme that defrauded hundreds of investors of nearly $50 million. The agency obtained a temporary restraining order on false claims that individuals named in the suit had moved $720,000 overseas in order to hide the assets and were also planning on fleeing the country.
In a posting on X, formerly Twitter, Austin Campbell, founder of blockchain advisory firm Zero Knowledge Consulting, called for SEC reforms and suggested staff members involved in the case be terminated.
The staff involved should be terminated, the agency should be reformed, and going forward, SEC lawyers should have personal liability for such conduct, in addition to the agency itself. What is described here is unconscionable for those entrusted with such authority by law.
— Austin Campbell (@CampbellJAustin) March 18, 2024
