Judge threatens to sanction SEC over ‘misleading’ statements in crypto case

U.S. District Judge Robert Shelby issued a stern warning to Securities and Exchange Commission (SEC) attorneys regarding possible sanctions for “misleading” court proceedings in a lawsuit against the cryptocurrency firm Debt Box, according to court filings.

The SEC secured a temporary restraining order against Debt Box via statements that were later proven to be false.

Judge Shelby, presiding over the case in the Utah District Court, expressed concerns about the SEC’s representation of Debt Box’s activities and ordered the watchdog to provide an explanation to the court in the coming days.

SEC vs. Debt Box

The SEC had accused the firm of illicitly transferring assets and investors’ funds overseas and used that statement to secure an initial freeze of Debt Box’s bank accounts as part of its case against the firm.

However, these claims were subsequently found to be exaggerated, prompting the judge to consider sanctions against the SEC attorneys for their role in presenting these misleading arguments.

As defined by the U.S. legal framework, sanctions typically involve monetary fines and are imposed on parties that knowingly submit false statements or violate court procedures. This measure comes in light of Debt Box proving that it did not move funds outside the U.S. or close its bank accounts as previously alleged by the SEC.

The SEC filed a lawsuit against Debt Box in July, claiming the company sold unregistered securities known as “node licenses” starting in 2021. These licenses were purportedly presented as a means to mine cryptocurrency, which the SEC alleges was a facade for self-minting crypto using computer code.

Judge Shelby’s recent order requests the SEC lawyers to address his findings regarding their inaccurate and context-lacking arguments about Debt Box’s supposed overseas fund transfer. The SEC has been given a two-week deadline to respond to the judge’s inquiries.

Calls for subpoena

Crypto lawyer John E. Deaton remarked on the situation on social media, saying there is a need for greater scrutiny of the SEC’s approach to cryptocurrency-related cases.

Deaton accused the SEC of consistently deceiving the court in crypto cases over the past three years, suggesting a personal vendetta against the industry. He specifically named SEC lawyers Jorge Tenreiro and Gurbir Grewal for intentionally misleading the court.

Deaton’s tweet highlighted broader issues, including judges’ criticisms of the SEC lawyers’ commitment to the law and the SEC’s disregard for Congressional inquiries. He urged Congressman Patrick McHenry and other committee members to uphold their oath and conduct rigorous oversight of SEC Chair Gary Gensler and the SEC.

Deaton called on the lawmakers to issue a Congressional subpoena against the SEC — an unprecedented move. He argued that despite the potential for litigation, it is necessary to challenge the SEC’s overreach and set a precedent against the administrative state’s excessive power.