A US district court has sanctioned the Securities and Exchange Commission (SEC) after one of the numerous enforcement actions it has taken against the crypto industry ended up backfiring.
On Monday, an order was filed, which revealed that the SEC had been accused of ‘bad faith conduct’ by Judge Robert J. Shelby.
This was related to the temporary restraining order (TRO) that the SEC had obtained against Debt Box after it had filed a complaint against the company back in July.
The statement
According to the judge, the securities regulator had misled the court to obtain the TRO in question.
The judge stated that the conduct of the agency was considered a gross abuse of power that Congress had entrusted it with and it undermined the judicial process and the integrity of the proceedings substantially.
The court also ordered the regulatory body to cover the legal and attorney fees that Debt Box had incurred.
The crypto company provides investors with ‘node software licenses’ and generates yields on their behalf via crypto mining.
DeFi Education Fund’s Chief Legal Officer, Amanda Tuminelli, said that no one in the crypto industry was surprised by this latest occurrence.
She said that the SEC had been focused on its advocacy to such an extent that it ended up lying to the court to bolster its position.
She added that they hoped that the judge would hold SEC to the highest standards and ensure that they provide verifiable facts to support their litigation.
The case
Initially, the SEC had accused Debt Box of defrauding its investors after it had allegedly raised a sum of $50 million in Bitcoin (BTC), Ethereum (ETH), and cash.
According to the securities regulator, the company had spent the money on lavish vacations and luxury vehicles rather than on actual business.
The SEC had also argued at the time about not giving advance notice of the TRO to Debt Box, saying that its executives might flee to the United Arab Emirates (UAE).
It had claimed that the company had already transferred funds overseas, which were valued at $750,000.
The response
The agency’s request had initially been heeded by the Utah District Court, but the defendants filed a countermotion, which saw the TRO dissolved a few months later.
The court declared that the TRO had been issued improvidently. The judge reviewed the order and found evidence that the money referred to by the SEC had been transferred within US borders.
A ‘show cause order’ was filed in response by the court and the regulator was told to provide evidence for its initial claims, or it would be sanctioned.
The SEC then admitted that its lawyers had not been ‘forthcoming’ with the court and claimed that sanctions were unnecessary.
It opted to file for the case’s dismissal entirely, but Judge Shelby was not so forgiving. He said that such issues cannot be written off as inadvertent and willful mistakes.
He said that the admission and the justification that the Commission had given showed that the actions had been taken in bad faith.
Crypto industry leaders have celebrated the court’s ruling, as they have accused the regulator of being hostile towards the emergent sector for years.