The Securities and Exchange Commission (SEC) has been sanctioned by a U.S. district court after one of its many enforcement actions against the crypto industry backfired badly.
In an order filed Monday, Judge Robert J. Shelby accused the SEC of “malicious conduct” in misleading the court to obtain a temporary restraining order (TRO) against Debt Box in July. .
The agency's actions “represent a gross abuse of the authority delegated to it by Congress and substantially undermine the integrity of these proceedings and the judicial process,” the judge wrote.
The court orders the SEC to pay attorney fees and litigation costs incurred by Debt Box, a cryptocurrency company that provides “node software licenses” to investors in order to earn profits through cryptocurrency mining. .
“I don’t think anyone in the crypto industry is surprised that the SEC was so focused on its own case that it lied to the court to strengthen its position,” said DeFi Education Fund Chief Legal Officer. Amanda Tuminelli said. Decryption. “My hope is that judges who interact with the SEC as litigants will hold them to the highest standards and ensure that the SEC supports their claims with verifiable facts.”
The SEC initially accused these investors of raising $50 million in cash, Bitcoin (BTC), and Ethereum (ETH) and spending the money on luxury cars and luxury vacations rather than the actual business. He accused her of defrauding him.
At the time, the SEC alleged that Debt Box executives may flee to the United Arab Emirates (UAE), claimed that Debt Box had already transferred $720,000 overseas, and that Debt Box had no advance notice of a TRO. It was against giving notice.
The Utah District Court initially heeded the agency's request, but several months later, after counter-claims from the defendants, it dissolved the TRO, declaring that the restraining order had been improperly issued. After reviewing the order, the judge found evidence that the $720,000 that authorities mentioned was actually transferred within U.S. borders.
In response, the court filed an “order to show cause” with the SEC, requesting evidence of the regulator's original claims under threat of sanctions. Instead, the SEC acknowledged that the lawyers were not “actively” in court, but moved to dismiss the case entirely without prejudice, saying sanctions were unnecessary.
But Judge Shelby was less forgiving.
“The court cannot dismiss these issues as unintentional and inadvertent mistakes,” he wrote. “The Commission's admissions and attempts at justification…demonstrate that the Commission's efforts to obtain and defend a unilateral TRO were malicious.”
Debt Box called the court's action a “monumental victory” on Twitter.
“This landmark case highlights the need for regulatory reform and supports the importance of integrity in legal proceedings,” the company wrote. “The court's decision to order the SEC to pay Debt Box's legal costs signals an important commitment to transparency and ethical conduct within the regulatory agency.”
The court's decision was welcomed by crypto industry leaders, who have long accused the SEC of being an overly hostile regulator to the emerging sector.
As Coinbase Chief Legal Officer Paul Agrewal pointed out, penalties against government agencies like the SEC are ultimately collected by taxpayers. Coinbase has been embroiled in a high-stakes lawsuit with regulators, which some believe has turned in favor of the crypto exchange following the Debt Box ruling.
Edited by Ryan Ozawa.
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