SEC Ordered to Pay $1.8M After Judge Dismisses Debt Box Case

Jimmy Aki
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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’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.

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.

 

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.

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.”

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.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.