Federal Judge Rebukes SEC for Treatment of Cryptocurrency Firm
A federal judge has criticized the Securities and Exchange Commission over its handling of a cryptocurrency firm, expressing concern that the agency had made “materially false and misleading representations” in order to freeze millions of dollars in assets belonging to the project.
The Case
The case, filed in a Utah federal court, concerns a firm called Digital Licensing Inc., or DEBT Box. The SEC alleged that the project had defrauded investors out of nearly $50 million by selling unregistered securities called “node licenses.”
Ex Parte Order
As part of the initial process, the SEC successfully obtained a temporary restraining order and asset seizure through a so-called ex parte application—meaning the crypto firm was not informed of the proceedings and was not able to challenge them in court at the time.
Federal Judge’s Order
In his order, U.S. District Judge Robert Shelby explain that a temporary restraining order requires a party to show a high likelihood of “irreparable harm”, meaning the SEC’s lawyer had said the crypto company was actively closing bank accounts and transferring operations to Abu Dhabi and beyond the reach of US regulators, assertions that were found to be untrue. The judge concluded that the SEC had potentially deceived the court in its description of the facts used to justify the earlier orders.
SEC Faces Sanctions
The document issued by Shelby came in the form of a “show cause order”. Shelby argued that he is “concerned” the SEC “undermined the integrity of the proceedings.” The judge also wrote that he was “troubled” by the SEC attorney’s misrepresentation of the account closures
Reactions
The cryptotrading industry is likely to seize on Shelby’s order to reiterate long-standing complaints that the agency under Chairman Gary Gensler has pursued a vendetta against it. An August report from blockchain analytics firm TRM Labs supports the SEC’s core claims that DEBT Box misled investors about mining tokens. A lawyer representing the defendants declined to comment.
An SEC spokesperson said, “We are in receipt of the order to show cause and will respond to the court as directed”. The agency has two weeks to respond to Shelby’s order.
I have been a full-time professional writer for over 10 years, and have written for some of the biggest publications in the world. My work revolves around cryptocurrencies and blockchain technology, and I am widely considered to be one of the leading experts in these fields.I have written two books on the subject matter, and my articles have been featured in major news outlets such as The Wall Street Journal, Forbes, and Huffington Post. In addition to writing, I also give talks and seminars on cryptocurrency investing, and am a regular commentator on CNBC, Bloomberg, and other financial news networks.
