United States District Judge Robert Shelby has issued a stern warning to lawyers from the Securities and Exchange Commission (SEC), hinting at potential sanctions in response to alleged deceptive statements made in a legal action against Digital Licensing Inc., also known as DEBT Box, a prominent cryptocurrency company.
The SEC had filed a lawsuit against DEBT Box in the federal court of Utah, alleging that the company had deceived investors by approximately $50 million through the sale of unregistered securities known as “node licenses.”
However, Judge Shelby’s ruling revealed significant inconsistencies in the SEC’s case.
Initially, the SEC, led by attorney Michael Welsh, had successfully convinced the court to freeze DEBT Box’s assets, claiming that the company was relocating to Dubai to evade U.S. regulatory oversight.
Subsequently, it was discovered that these assertions were inaccurate, as there were no bank account closures, and an alleged overseas transfer of $720,000 turned out to be domestic.
Judge Shelby expressed concerns about the conduct of the SEC lawyers, suggesting that 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.
In response, Shelby issued a “show cause order,” requiring the SEC to provide reasons why they should not face penalties for their actions.
The complexity of the case is emphasized by a TRM Labs report that supported the SEC’s primary claim that DEBT Box had deceived investors regarding mining tokens.
However, the defense counsel has yet to provide a statement on the issue, and the SEC has acknowledged the order, with plans to respond within the specified two-week timeframe set by Judge Shelby.
This development marks a crucial moment in the legal process, shedding light on the intricacies of cryptocurrency regulation and emphasizing the importance of legal accountability in high-stakes financial litigation.
Ripple lawyer John E. Deaton expressed little surprise at the SEC’s alleged dishonesty, suggesting that the agency’s lawyers may have personal biases in crypto cases.
Deaton called for a subpoena against the financial regulator.
His colleague, Ripple chief technology officer Stuart Alderoty, has also outlined troubling patterns observed in the SEC’s actions, further raising questions about the agency’s conduct in cryptocurrency-related matters.
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