The Securities and Exchange Commission (SEC) is facing criticism and possible sanctions from a federal judge for making false and misleading statements in a lawsuit against a crypto company. The SEC sued DEBT Box, a crypto firm that allegedly raised nearly $50 million from investors by selling unregistered securities.
The SEC obtained a temporary restraining order and an asset freeze against the company, claiming that the defendants were obstructing the investigation and hiding evidence. However, the defendants challenged the SEC’s allegations and provided proof that they had cooperated with the agency and disclosed their activities.
Judge Robert Shelby of the Northern Division District Court of Utah ordered the SEC to explain why it had made “materially false and misleading representations” to the court and why it should not face sanctions for “undermining the integrity of the proceedings.”
SEC Admits Errors And Apologizes
In a court filing on Tuesday, the SEC asked the judge to dismiss the case without prejudice, meaning it could be reopened in the future, to avoid any disciplinary actions. The SEC admitted that its lawyers had made errors and failed to meet the standards of candor and professionalism expected from them.
“While the Commission recognizes that its attorneys should have been more forthcoming with the Court, sanctions are not appropriate or necessary to address those issues,” the SEC lawyers wrote.
The SEC also said that it had taken steps to prevent such mistakes from happening again, including conducting mandatory training for the staff members involved in the case. SEC enforcement chief Gurbir Grewal also sent a letter to the judge, apologizing for the agency’s shortcomings and expressing his commitment to uphold the highest ethical standards.
SEC Under Scrutiny For Crypto Crackdown
The SEC’s blunder in the DEBT Box case comes amid its aggressive enforcement actions against the crypto industry, which the agency’s chair, Gary Gensler, has described as largely operating outside U.S. securities laws. The SEC has filed several lawsuits against crypto companies and individuals, accusing them of violating the securities laws by offering or selling digital assets without proper registration or disclosure.
Some of the SEC’s targets include Ripple, the company behind the XRP cryptocurrency, which is fighting a $1.3 billion lawsuit; Coinbase, the largest U.S. crypto exchange, which received a warning letter from the SEC over its proposed lending product; and Uniswap, a decentralized exchange, which is under investigation by the SEC for potential securities violations.
The SEC’s actions have sparked a backlash from the crypto community, which has accused the agency of stifling innovation and creating uncertainty in the market. Some crypto advocates have also called for more clarity and guidance from the SEC on how it regulates digital assets and what constitutes security in the crypto space.
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