SEC Hit With Sanctions For Abuse Of Power In Debt Box Case

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A United States District Court has imposed sanctions on the United States Securities and Exchange Commission for gross abuse of power and acting in bad faith in a lawsuit against Debt Box. 

The Securities and Exchange Commission initially conceded it misled the court but maintained that a sanction was inappropriate. The regulator must now pay the attorneys’ fees for Debt Box. 

SEC Sanctioned 

Chief Judge Robert Shelby ruled that the Securities and Exchange Commission must pay all legal costs for Debt Box. The court ruled that the regulator had committed a gross abuse of power in securing a temporary restraining order against the company. In an order passed on Monday, Chief Judge Robert Shelby wrote that SEC attorneys misled the court in applying for a restraining order and later when Debt Box filed to dissolve the order. 

“The Commission’s above-discussed conduct constitutes a gross abuse of the power entrusted to it by Congress and substantially undermined the integrity of these proceedings and the judicial process. The bad faith in inextricable from the abusive conduct and a sanction of attorneys’ fees and costs for all expenses resulting from that conduct is appropriate.”

The court noted that the order focused on the restraining order, not the underlying case. 

“Each piece of support the Commission offered in seeking the TRO – and then later reiterated in defending the TRO – proved to be some combination of false, mischaracterized, and misleading. Further, the Commission not only repeated and affirmed its misrepresentations in the face of contrary evidence. It presented new falsehoods to the court in an effort to subtly shift from its previous misrepresentations without acknowledging its previous errors.”

The SEC vs Debt Box 

The Securities and Exchange Commission claimed that Debt Box perpetrated a fraudulent cryptocurrency scheme in its operations as a mining license provider. When requesting the temporary restraining order and asset freeze, the SEC claimed that Debt Box had already sent over $720,000 overseas and could potentially flee to the United Arab Emirates and secretly transfer more assets. 

While the request was initially approved, Judge Shelby reviewed the initial offer and concluded that the SEC wilfully misrepresented evidence and that the $720,000 transfer was sent within the United States and not overseas. 

Court Raps SEC

Judge Shelby had given the SEC a show-cause order in December, asking the commission to explain its actions to the court. The SEC accepted that while its actions were inappropriate, a sanction was uncalled for. Judge Shelby singled out SEC attorney Michael Welsh in particular, stating, 

“Welsh knew his statement from the TRO hearing was incorrect. Rather than correcting the misstatement, he and the Commission attempted to subtly shift the language to gloss over and perpetuate the misconduct.”

Austin Campbell, the founder of Zero Knowledge Consulting, and many others in the crypto space, believe that the SEC staff involved must have personal liability for such conduct and called for reform within the agency. 

“The staff involved should be terminated, the agency should be reformed, and going forward, SEC lawyers should have personal liability for such conduct, in addition to the agency itself. What is described here is unconscionable for those entrusted with such authority by law.”

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