SEC Ordered to Pay $1.8M After Judge Dismisses Debt Box Case
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A U.S. federal judge ruled on May 28 that the Securities and Exchange Commission (SEC) must pay approximately $1.8 million in legal fees in its case against Digital Licensing Inc., operating as Debt Box.
Judge Dismisses Debt Box Case “Without Prejudice”
In a recent court order, Utah District Court Judge Robert Shelby ruled that the US SEC pay $1.75 million, which covers $1 million allocated for attorney fees and an additional $750,000 for receiver fees and costs.
Judge Shelby orders the #SEC to pay $1.8 million in damages for abusing its power against crypto company 'Debt Box'. Throws it out of court. Huge loss for Gensler.
Tax payer money paying this fine. https://t.co/WT6NsLQIAC pic.twitter.com/3RT52p2EW9
— MartyParty (@martypartymusic) May 28, 2024
Judge Shelby’s ruling confirmed that all the costs requested by the defendants, except for a single $649 fee, were deemed “appropriate.”
In a separate filing, the judge dismissed the case without prejudice, as requested by the SEC. The regulatory body argued that the dismissal without prejudice was necessary to protect investors and the public interest while ensuring that the defendants did not suffer legal prejudice. This type of dismissal allows the SEC to reopen the case in the future if deemed necessary.
The court decided against dismissing the case with prejudice for several reasons. The case was still in its early stages, meaning the defendants had not yet incurred significant trial expenses. Additionally, the court acknowledged that the SEC’s enforcement activities serve the public interest, justifying the decision to allow the potential for future action.
In response to the court’s decision, Debt Box took to X (formerly Twitter) to announce the imposition of sanctions on the SEC. Debt Box emphasized that the court had required the SEC to cover the attorney fees and costs that the company incurred during the legal battle.
🚀 We have some fantastic news to share with our D.E.B.T. Box community today!
The U.S. District Court for the District of Utah has officially dismissed the SEC's case against us without prejudice. This means the case is closed, and any future action by the SEC would have to go… pic.twitter.com/aGiNVxMYbz
— D.E.B.T. (@TheDebtBox) May 28, 2024
The firm expressed its satisfaction at the court ruling as it described it as a major step towards “justice and transparency.” Debt Box further clarified that with the case now closed, any future action by the SEC against them would need to be presented before Judge Shelby.
Your taxes at work. Judge Shelby ordered the SEC to pay attorneys' fees of over $1 million and receivership fees of about $750,000 after finding that "the Commission engaged in bad faith conduct in obtaining and defending the TRO and imposed a sanction against the Commission of… pic.twitter.com/ljGfwDGWna
— paulgrewal.eth (@iampaulgrewal) May 28, 2024
Deep Dive into SEC’s Debt Box Case
In July 2023, the SEthey C filed a complaint against Debt Box, accusing the company of defrauding investors of at least $49 million. This serious allegation led to a legal battle that has since taken several noteworthy turns.
In a March 2024 filing, Federal Judge Shelby sharply criticized the SEC’s conduct, particularly concerning how the agency obtained a temporary restraining order against Debt Box. This order included an asset freeze and the appointment of a court receiver to take control of the company.
Judge Shelby highlighted the SEC’s questionable behavior during this process, underscoring the agency’s failure to provide accurate and transparent information to the court, and ruled that the US regulator must pay for the legal costs associated with the temporary restraining order imposed on Debt Box, the previous year. This included the costs incurred due to the asset freeze and the appointment of the receiver.
"The Commission’s above-discussed conduct constitutes a gross abuse of the power entrusted to it by Congress and substantially undermined the integrity of these proceedings and the judicial process… The operation of the American judicial system rests on the fundamental… pic.twitter.com/eBYI8AhJSt
— paulgrewal.eth (@iampaulgrewal) March 18, 2024
In April, the case saw additional drama when two SEC lawyers leading the charge against Debt Box resigned. Their resignations followed Judge Shelby’s comments that the case had been “marred by false statements and misrepresentations.”
Two SEC lawyers just resigned after a judge sanctioned them for gross abuse of power in a crypto case.
The SEC's lawsuit was "marred by false statements and misrepresentations, as well as a lack of evidence."
Gary G hanging on by a thread these days. pic.twitter.com/vJEDGsTAiR
— Yano 🟪 (@JasonYanowitz) April 22, 2024
This added to the already complex and contentious nature of the proceedings, illustrating the significant procedural and ethical issues that had plagued the SEC’s Debt Box case.
Debt Box is not the first crypto company to be in a legal battle with the SEC. Binance was sued by the financial watchdog in 2023, which resulted in consequences for Binance.US, a subsidiary of this exchange, even after Binance had made a settlement plea with its co-founder Changpeng Zhao stepping down as the CEO.