Lawyers representing the United States Securities and Exchange Commission have responded in court over claims they spun a “false narrative” to avoid dismissal of an enforcement case against a mining software firm.
In Dec. 21 filings in U.S. District Court for the District of Utah, Northern Division, the SEC said it had failed to be “accurate and candid” in earlier court filings claiming software firm Debt Box closed certain bank accounts and planned to relocate to the United Arab Emirates in an alleged attempt to escape the commission’s jurisdiction. According to the filing, the SEC failed to correct a misrepresentation of facts presented to the court to secure a temporary restraining order to freeze assets.
“The Commission takes this Court’s concerns seriously and deeply regrets these errors,” said the SEC. “Agency officials are taking steps to ensure those errors are not repeated in this action or other proceedings.”
In a separate declaration, SEC enforcement director Gurbir Grewal apologized on behalf of the commission, acknowledging it had “[fallen] short” of standards to present accurate evidence to the court. He said the enforcement division would have additional training starting in January 2024.
The case stemmed from a July lawsuit filed by the SEC, which alleged that Debt Box perpetrated an illegal $50-million crypto scheme. The court granted the SEC a temporary restraining order to freeze the company’s assets in August. However, it reversed its decision in November after determining that the commission represented evidence regarding Debt Box’s bank accounts and intentions to move to the UAE.
Judge Robert Shelby, overseeing the SEC’s case against Debt Box, suggested the commission could face sanctions due to its inaccurate statements. According to the SEC, sanctions were not warranted as its staff didn’t engage “in any bad faith conduct”:
“The Commission’s representatives failed to accurately characterize the bases for their factual assertions, failed to identify inferences as such and to explain the bases for those inferences, and failed to identify inaccuracies in those assertions once discovered.”
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On Dec. 4, lawyers for Debt Box filed a motion to dismiss, saying the SEC made false allegations in earlier filings and “fail[ed] to meet the basic pleading standards” for the case. The case has drawn attention from many in the crypto space, including representatives of firms facing enforcement action by the SEC.
“In most cases [the SEC’s admission] wouldn’t be such a big deal because the other party would argue the other side,” said Ripple chief technology officer David Schwartz in a Dec. 22 X reply. “But here, this was an ex parte ‘emergency’ proceeding with the SEC asking for immediate, extraordinary relief giving no opportunity for the other side to be heard.”
The SEC admission and the claims from Debt Box were a seemingly rare rebuke by a court as the commission pursues multiple enforcement cases. The commission has civil cases pending against Terraform Labs, Binance, Coinbase, Ripple, Kraken and others.
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