U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler Drew Angerer—Getty Images
A federal judge on Monday imposed an unprecedented penalty against the Securities and Exchange Commission in connection with a lawsuit it filed against Utah-based cryptocurrency company DEBTBox in July. Measures have been taken.
The case received wide attention because the defendants accused the SEC of misrepresenting material facts when the SEC obtained a temporary restraining order to freeze assets on the cryptocurrency platform. After U.S. District Judge Robert Shelby ordered the SEC to explain its actions, the agency's lawyers acknowledged that the SEC made mistakes but asked that Shelby not be formally punished. Ta.
In Monday's ruling, Mr. Shelby rejected the SEC's request, citing multiple instances of “malicious” conduct and finding that the SEC was responsible for “gross abuse of power.” In an 80-page filing, Mr. Shelby imposed sanctions by requiring the agency to pay DEBT Box's attorney fees and costs associated with the restraining order. The judge also denied the SEC's motion to dismiss the case without prejudice, meaning the SEC could refile the case at a later date.
“[The SEC’s conduct] “substantially undermined the integrity of these proceedings and the judicial process,” Shelby wrote.
“malicious act”
DEBT Box is a little-known cryptocurrency company that offers investment vehicles in the form of “node software licenses” that allow customers to mine various digital assets. The SEC first filed charges against the company in July, alleging the project defrauded investors of nearly $50 million by selling unregistered securities. Before the case was sealed, authorities unilateral Temporary Restraining Order – An unusual measure that does not even give the defendant notice of the proceeding, and is typically granted only when the defendant poses a significant risk of destroying evidence or fleeing the United States. In the DEBT Box case, the SEC asserted that he had actively issued a restraining order. He has closed his bank account and is looking to move abroad.
Mr. Shelby initially granted the SEC's request, but defense attorneys later revealed that the agency had provided false information in the restraining order request, including that the SEC was aware of the investigation and had taken steps to flee the country. He pointed out that he had been told. In a December order, Mr. Shelby asked the SEC to provide evidence to support the restraining order.
Weeks later, the agency filed a response admitting the error, and SEC Enforcement Director Gurbir Grewal apologized for “deficiencies” in the case. Still, the agency's lawyers asked Shelby to waive sanctions, arguing that the staff had not committed any “malicious acts.” In January, the SEC moved to dismiss the case without prejudice, reiterating that the sanctions were not appropriate and that case law does not allow the SEC to impose monetary penalties.
Despite the agency's apology, the incident quickly became a lightning rod for both the crypto industry and sympathetic politicians who have long been frustrated by the fervent enforcement campaign against the blockchain sector under Commissioner Gary Gensler. It became. In February, a group of Republican senators sent a letter to Gensler expressing concern about the lawsuit, arguing that it had “eroded” trust in the agency.
Shelby's Monday ruling vindicates DEBT Box and the SEC's critics, with the judge ruling that the key evidence used by DEBT Box to obtain the restraining order was “unsubstantiated.” He acknowledged that he understood that “there was no such thing.”
Still, Shelby wrote, “the committee nevertheless intentionally advanced its evidence in a false and misleading manner.”
In his decision, Mr. Shelby took particular issue with the SEC's status as a federal agency, and the agency's lawyers cited the SEC's “special standing” in seeking restraining orders. Granting the first order “changed my life forever,” Shelby wrote. He further argued that the SEC not only repeated factual errors in subsequent statements, but also presented “new falsehoods to the court.”
“Courts cannot dismiss these matters as unintentional and careless mistakes,” he wrote, adding that the authorities were suspicious because the lawyers knew they could not otherwise secure a restraining order or asset freeze. It concluded it had made a “strategic decision” to present the information.
The strongly worded decision will increase scrutiny of Gensler's approach to policing the industry, as major crypto companies are embroiled in litigation with the SEC. “The committee just imposed a bill on all of us against procedural malpractice.” tweeted Paul Grewal, Coinbase's chief legal officer, said the company is currently seeking dismissal of an SEC lawsuit alleging that the exchange's business model violates securities laws.
“We are reviewing the decision,” an SEC spokesperson said in response to a request for comment from the agency. luck.
