A federal judge in Utah has sanctioned the US Securities and Exchange Commission (SEC) after the regulator made an inaccurate statement in a crypto fraud case.
In an order filed Monday, U.S. District Court Judge Robert Shelby accused the SEC of “bad faith in obtaining, enforcing and defending” a temporary restraining order (TRO) against Digital Licensing Inc., a Utah-based company operating under the name “DEBT Box.”
Last July, the SEC obtained a temporary asset freeze, restraining order, and other emergency relief against DEBT Box after alleging that the company and its founders carried out a fraudulent scheme that sold bogus “node licenses” to investors the company said were using crypto assets would generate. through mining.
The company reportedly raised around $50 million and unspecified amounts of Bitcoin (BTC) and Ethereum (ETH).
The SEC obtained the TRO and asset freezes in part by alleging that DEBT Box and its founders funneled investor funds into luxury purchases and accounts abroad.
However, the defendants filed a motion to vacate the temporary restraining order granted by the court, alleging that the SEC misrepresented the facts in its allegations.
The restraining order was lifted at a hearing in October, and in November the judge on the case asked the SEC to explain the alleged misrepresentation.
In a response filed in December, the SEC acknowledged that one of its attorneys “made a statement” that was inaccurate during the first hearing on the restraining order in July.
Michael Welsh, the SEC’s lead attorney, alleged during the hearing that the defendants had closed approximately 33 bank accounts in the 48 hours leading up to the trial.
The regulator admitted that Welsh’s number was derived from a miscommunication. In reality, the SEC explains, only 24 bank accounts were closed, and none were closed in the month of the hearing.
However, the SEC noted that the balances of several bank accounts of certain defendants were significantly reduced in July, but not closed. The regulator also recognized several cases where interpretations and inferences were wrongly presented as facts.
In his recent ruling, Judge Shelby called the SEC’s conduct a “gross abuse of power” that “substantially undermined the integrity of this proceeding and the judicial process.”
“In these circumstances, the court exercises its inherent power to punish the Commission’s bad faith. Accordingly, the court imposes a penalty of attorneys’ fees and costs for all costs arising out of the TRO and the appointment of the trustee – including payment of all costs and fees of the trustee.”
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