SEC Committed 'Gross Abuse of Power' in Suit Against Crypto Company, Federal Judge Rules

A federal judge ruled that the U.S. Securities and Exchange Commission must pay legal costs for DEBT Box, a Utah-based crypto company the SEC brought a suit against, finding that the regulator had committed a "gross abuse of power" in its efforts to secure a temporary restraining order.

The SEC sued the crypto project last year alleging fraud, securing a temporary asset freeze and restraining order against the company. According to the SEC, DEBT Box was telling customers it was selling licenses to mine cryptocurrency, but was in reality just creating tokens with code. DEBT Box filed to dissolve the temporary restraining order, claiming the SEC had misled the court about the company moving its funds and closing its bank accounts.

In an order Monday, Chief Judge Robert Shelby, from the District of Utah, wrote that the SEC's attorneys misled the court both in applying for a temporary restraining order as well as afterward, when DEBT Box filed to dissolve the order, noting at the end that the order is focused on the TRO question, and not the underlying case.

The SEC will be required to pay defendants' and receivers' fees as part of the court's sanctions, the judge wrote.

"Each piece of support the Commission offered in seeking the TRO – and then later reiterated in defending the TRO – proved to be some combination of false, mischaracterized, and misleading," the order said. "Further, the Commission not only repeated and affirmed its misrepresentations in the face of contrary evidence, it presented new falsehoods to the court in an effort to subtly shift from its previous misrepresentations without acknowledging its previous errors."

An SEC spokesperson said the agency was "reviewing the decision."