Federal Judge Rebukes SEC for Freezing Crypto Firm’s Assets
A federal judge has expressed concern over the actions of the Securities and Exchange Commission (SEC) regarding a crypto firm. The judge rebuked the SEC for possibly making “materially false and misleading representations” in order to freeze millions of dollars in assets belonging to the firm.
The case, filed in Utah federal court, involves a firm called Digital Licensing Inc., also known as DEBT Box. The SEC filed a complaint this summer, alleging that the project had defrauded investors out of nearly $50 million by selling unregistered securities called “node licenses.”
One-Sided Proceedings to Freeze Assets
The SEC successfully obtained a temporary restraining order and asset seizure through an ex parte application, a process that did not inform the crypto firm of the proceedings and did not allow them to challenge them in court.
U.S. District Judge Robert Shelby revealed that he granted the SEC’s request based on concerns that the crypto company was actively closing bank accounts as part of a bid to move the firm to Abu Dhabi and beyond the reach of U.S. regulators. However, it was later found that some of these arguments had been “entirely without merit and misstated the record.”
Rebuke of the SEC
Judge Shelby expressed his concerns that the SEC’s attorney had misrepresented the account closures and that there was a lack of clarification or correction from other present parties.
He also argued that the SEC had not shown evidence to support their claims that the firm had blocked investigators from viewing its social media sites. As a result, the judge concluded that the SEC had possibly deceived the court in its description of the facts used to justify the earlier orders.
SEC Faces Sanctions
In response to these concerns, Judge Shelby issued a “show cause order” demanding that the SEC justify its behavior. The order called the SEC to respond to specific examples of apparent falsehoods, including their claims about closed bank accounts and social media blocking.
While specific sanctions for these violations are not provided, the order prompts the SEC to explain why the court should not punish the agency for its actions. The agency has two weeks to respond to Shelby’s order. The story was originally featured on Fortune.com.
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