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Lawyers representing the United States Securities and Exchange Commission responded in court to allegations that they created a false narrative to prevent the dismissal of an enforcement action against a mining software company. According to the file, the SEC failed to correct the misrepresentation of facts presented to the court to obtain a temporary restraining order to freeze assets.
Major Error by SEC Officials
On December 21st, the U.S. District Court for the District of Utah, Northern Division, revealed that the SEC was not truthful and sincere in previous court filings where it claimed that the software company Debt Box had closed certain bank accounts and planned to move to the United Arab Emirates to escape the commission’s jurisdiction. The SEC stated:
“The Commission takes this Court’s concerns seriously and deeply regrets these errors. Agency officials are taking the necessary steps to ensure that these mistakes are not repeated in this case or in other cases.”
SEC Enforcement Director Gurbir Grewal made a separate statement, apologizing on behalf of the commission and admitting that the standards for presenting accurate evidence to the court were not met. He stated that the enforcement division would receive additional training starting from January 2024.
The case came to light due to a lawsuit filed by the SEC in July, alleging that Debt Box was running an illegal $50 million crypto scheme. The court granted the SEC a temporary restraining order in August to freeze the company’s assets. However, the decision was reversed in November after the court determined that the commission had presented evidence regarding Debt Box’s bank accounts and intentions to move to the UAE.
Sanction Decision Looms Over SEC
Judge Robert Shelby, overseeing the case against Debt Box filed by the SEC, suggested that the commission could face sanctions due to its misrepresentations. According to the SEC, there is no need for sanctions as the staff did not engage in any malicious conduct. The following statement was made:
“Commission representatives failed to accurately describe the bases for their factual claims, failed to identify such inferences, failed to explain the bases for these inferences, and failed to identify these inaccuracies after discovering them.”
On December 4th, lawyers for Debt Box claimed that the SEC had made false allegations in previous filings and failed to meet the basic defense standards for the case, requesting their dismissal. The case has attracted the attention of many in the crypto space, including representatives of companies facing sanctions by the SEC. David Schwartz, Ripple‘s Chief Technology Officer, commented on the issue in a post dated December 22:
“In most cases, this wouldn’t be such a big issue because the other side would defend itself. However, here, there was an urgent filing for extraordinary relief where the SEC sought without giving the other side a chance to be heard.”
The SEC’s admission and the allegations against Debt Box come as the commission pursues numerous enforcement cases, with a rare warning from a court. The commission has ongoing legal cases against Terraform Labs, Binance, Coinbase, Ripple, Kraken, and others.
