SEC faces sanctions threat as Judge questions DEBT Box case accuracy

United States District Judge Robert Shelby has cautioned the Securities and Exchange Commission (SEC) lawyers, hinting at possible sanctions due to purportedly deceptive statements in a legal action against Digital Licensing Inc., also recognized as DEBT Box, a crypto company.

Lodged in the federal court of Utah, the SEC’s legal action alleged that DEBT Box deceived investors by around $50 million via the vending of unregistered securities known as “node licenses.”

Judge Shelby’s decision revealed notable discrepancies in the SEC’s case. Initially, the SEC, led by attorney Michael Welsh, had convinced the court to freeze DEBT Box’s assets, arguing the company was moving to Dubai, beyond U.S. regulatory reach. Subsequently, it was discovered that these assertions were inaccurate, with no bank account closures and an alleged overseas transfer of $720,000 being domestic.

The judge raised apprehensions regarding the behavior of the SEC lawyers. Misrepresenting facts and the failure of other team members to rectify these inaccuracies may have violated federal court Rule 11(b), which mandates evidence-backed factual claims. This resulted in the issuance of a “show cause order” by Shelby, requiring the SEC to provide reasons why they should not incur penalties for these actions.

The intricacy of the case is underscored by a TRM Labs report corroborating the SEC’s primary claim that DEBT Box deceived investors regarding mining tokens. The defense counsel has not provided a statement on the issue, and the SEC has acknowledged the order, planning to respond within the two-week timeframe specified by Judge Shelby.

Related: The SEC is facing another defeat in its recycled lawsuit against Kraken

This milestone signifies a pivotal moment in the legal process, highlighting the complexities of cryptocurrency regulation and underscoring the significance of legal responsibility in high-stakes financial litigation.

Ripple lawyer John E. Deaton says he is not surprised that the financial regulator has been caught lying, adding, “It appears the lawyers at the SEC have made it personal when it comes to crypto cases.” With this, he calls for a subpoena against the financial watchdog. His colleague, Ripple chief technology officer Stuart Alderoty has also listed a detailed analysis of troubling patterns seen with the SEC.

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