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A federal judge issued a warning to Securities and Exchange Commission (SEC) lawyers on Thursday, cautioning them that he might sanction them for apparently convincing a court to freeze a crypto company’s assets under false pretenses, a court filing revealed
According to an order released by U.S. District Judge Robert Shelby of the U.S. District Court in Utah, the SEC’s lawyers may face sanctions for making “deceptive” arguments about crypto project Debt Box’s alleged efforts to move its assets and investors’ funds overseas, leading a court to freeze the project’s bank account. The SEC’s “misstatements … weakened the integrity of the case’s proceedings,” as well as causing Debt Box “irreparable harm,” Judge Shelby stated in an order.
Sanctions are charges a court issues to individuals who sign statements they know to be false or otherwise violate court procedures, according to Law.com‘s legal dictionary. In civil law, sanctions are usually enforced in the form of monetary penalties, according to Law.com
A federal judge first imposed a temporary restraining order on Debt Box in August, limiting its access to its assets. He later lifted the order after Debt Box demonstrated it had neither transferred funds outside the U.S., nor closed its bank accounts two days before a hearing over the SEC’s request to freeze its funds, Debt Box’s attorneys said in a filing.
The SEC’s Utah office did not immediately respond to a request for comment.
The SEC initially sued Debt Box in July, alleging the company conspired to sell unregistered securities called “node licenses,” beginning in 2021. Debt Box told investors the licenses would mine cryptocurrency that would appreciate in value, but they were actually minting the crypto themselves using computer code, the SEC alleged in its original complaint.
In Thursday’s order, Judge Shelby asked the SEC’s lawyers to respond to his findings that their arguments claiming Debt Box had attempted to move its funds abroad lacked context and were inaccurate. The regulator has two weeks to respond to the inquiry, according to the order.
Modified by Bradley Keoun.
