SEC Faces Possible Sanctions in DEBT Box Case, Judge Warns

United States District Judge Robert Shelby has issued a warning to lawyers from the Securities and Exchange Commission (SEC), suggesting that they may face penalties for making potentially misleading statements in their legal action against Digital Licensing Inc., also known as DEBT Box, a cryptocurrency company.

This legal action, which was filed in a federal court in Utah, accused DEBT Box of deceiving investors by approximately $50 million through the sale of unregistered securities referred to as “node licenses.” Judge Shelby’s ruling uncovered significant inconsistencies in the SEC’s case. Initially, the SEC, led by attorney Michael Welsh, convinced the court to freeze DEBT Box’s assets by claiming that the company was relocating to Dubai to evade U.S. regulations. However, it was later revealed that these claims were inaccurate, as there were no bank account closures, and an alleged overseas transfer of $720,000 was actually a domestic transaction.

Judge Shelby expressed concerns about the conduct of the SEC lawyers, as misrepresenting facts and the failure of other team members to correct these inaccuracies may have violated federal court Rule 11(b), which requires factual claims to be supported by evidence. As a result, Shelby issued a “show cause order,” demanding that the SEC provide reasons why they should not face penalties for their actions.

Adding to the complexity of the case, a report from TRM Labs supported the SEC’s primary claim that DEBT Box had deceived investors regarding mining tokens. The defense counsel has not yet issued a statement on this matter, and the SEC has acknowledged the order, intending to respond within the two-week timeframe specified by Judge Shelby.

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