A United States district court has issued sanctions against the Securities and Exchange Commission (SEC) for engaging in “bad faith” during its lawsuit against Debt Box. The SEC initially tried to dismiss the case without prejudice, but Judge Robert J. Shelby denied their request and criticized the regulator for deliberately lying to the court about the evidence it had obtained to obtain a temporary restraining order and freeze Debt Box’s assets in August of last year.
Judge Shelby stated in a filing on March 18th, “The Commission’s conduct in question is a clear abuse of the power granted to it by Congress and has significantly undermined the integrity of these proceedings and the judicial process.” He further explained that the “critical evidence” presented by the SEC had no basis and was deliberately presented in a false and misleading manner.
Judge Shelby concluded that the bad faith exhibited by the SEC was closely tied to their abusive behavior and thus imposed a sanction of attorneys’ fees and costs to cover all expenses resulting from their conduct.
In the SEC’s lawsuit filed in August, they accused Debt Box of engaging in a $50-million fraudulent cryptocurrency scheme while operating as a software mining license provider. The SEC requested the temporary restraining order and asset freeze, claiming that Debt Box had already sent $720,000 overseas and would attempt to flee to the United Arab Emirates and secretly transfer more assets if they were made aware of the order.
Initially, the request was granted, but Judge Shelby later reviewed his decision and found that the SEC had misrepresented the evidence, revealing that the $720,000 transfer had actually occurred within the United States.
In December, Judge Shelby issued a “show cause order” to the SEC, demanding an explanation or justification for their actions. While the SEC admitted that they had not been forthcoming, they argued against imposing sanctions.
Judge Shelby specifically called out SEC attorney Michael Welsh for misleading the court and attempting to confuse the matter. Austin Campbell, the founder of Zero Knowledge Consulting, expressed his belief that the SEC staff involved should be fired and that the agency needs to undergo reform.
The actions of the SEC in the Debt Box case have been deemed “unconscionable” by US senators. The question remains as to whether SEC Chair Gary Gensler has the final say in crypto regulation.