U.S. Judge Warns SEC Over 'False and Misleading' Request in Crypto Case

A federal judge on Thursday warned Securities and Exchange Commission (SEC) attorneys that he may sanction them for allegedly convincing a court to freeze a crypto firm's assets under "false and misleading" pretenses, a court filing shows.

According to an order issued by U.S. District Judge Robert Shelby of the U.S. District Court in Utah, the SEC's attorneys could be sanctioned for making "misleading" arguments about crypto project Debt Box's alleged efforts to transfer its assets and investors' funds overseas, leading a court to freeze the project's bank accounts. The SEC's "misrepresentations… undermined the integrity of [the case's] proceedings," in addition to causing Debt Box "irreparable harm," Judge Shelby said in an order.

Sanctions are penalties a court imposes on 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 imposed in the form of monetary fines, according to Law.com.

A federal judge first slapped Debt Box with a temporary restraining order, restricting its access to its assets, in August. However, he later dissolved the order after Debt Box demonstrated it had neither moved 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 lawyers said in a filing.

The SEC's Utah office did not immediately respond to a request for comment.

The SEC first sued Debt Box in July, alleging the company schemed to sell unregistered securities called “node licenses," beginning in 2021. Debt Box told investors the licenses would mine cryptocurrency that would increase 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 attorneys to respond to his findings that their arguments alleging Debt Box had attempted to move its funds overseas lacked context and were not factual. The regulator has two weeks to respond to the inquiry, according to the order.