Judge Dismiss DEBT Box Case, Orders SEC to Pay $1.8 Million in legal fees

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Key Takeaways

  • Judge Robert Shelby slammed the SEC for “bad faith conduct” in freezing Debt Box’s assets.
  • Judge ordered the SEC to pay $1 million for attorney fees incurred by Debt Box and $750,000 for fees associated with a court-appointed receiver.

The Securities and Exchange Commission (SEC) has been hit with a hefty $1.8 million bill after a Utah judge ruled the regulator abused its authority in a case against crypto platform Debt Box.

Judge Robert Shelby slammed the SEC for “bad faith conduct” in freezing Debt Box’s assets. The judge ordered the SEC to pay $1 million for attorney fees incurred by Debt Box and $750,000 for fees associated with a court-appointed receiver.

The case stemmed from an SEC lawsuit filed in July 2023, accusing Debt Box of running a $50 million illegal crypto scheme. However, the judge found the SEC’s actions questionable, particularly regarding how they obtained a temporary restraining order that froze Debt Box’s assets and placed the company under court supervision.

In March, Judge Shelby sharply criticized the SEC’s handling of the case, particularly its conduct in securing the restraining order. This criticism reportedly led to the resignation of two SEC lawyers leading the case in April.

Debt Box celebrated the judge’s decision in a May 28th post, stating, “This is a significant win for us. It means that the SEC cannot proceed with the case as it stands.”

The judge also dismissed the case on the same day without prejudice, meaning the SEC could refile charges if they choose. “The Commission argues dismissal without prejudice is appropriate because it will protect investors and the public interest, and will not cause Defendants legal prejudice,” the filing noted.

The SEC lawsuit against Debt Box in July 2023 alleged the firm perpetrated an illegal $50 million crypto scheme. SEC had alleged that DEBT Box defrauded thousands of investors of at least $49 million by offering customers so-called “node licenses” to receive revenue from mining 11 tokens, though they were never mined. In a March filing, Judge Robert Shelby criticized the SEC stating that the commission was deliberately perpetuating falsehoods in its efforts to obtain an asset freeze and a temporary restraining order against the company.

The latest development comes amid SEC’s increasing crackdown on crypto exchanges in recent years. In November 2023, the SEC sued Kraken alleging that it is operating as an unregistered exchange, broker and clearinghouse.

Earlier this year, the SEC also scored a major victory in its lawsuit against Coinbase when the court ruled that the SEC’s claim that the crypto platform engaged in unregistered sales of securities could be heard by a jury at trial. In March, the judge ruled that SEC had demonstrated enough of its legal premise in its accusations against Coinbase that the court would move forward with most of the case.

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Saniya Raahath
Saniya Raahath

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