Legal Experts React as SEC Moves to Withdraw DEBT Box Case After Court Threatens Sanction

Two months after a federal court ordered the SEC to explain why it should not be sanctioned for presenting misleading arguments in the DEBT Box case, the commission has disclosed plans to withdraw the lawsuit without prejudice.  

Top legal experts, including Attorneys John Deaton and James Murphy (a.k.a MetaLawMan), have reacted to the SEC’s latest decision to drop the lawsuit against crypto startup Digital Licensing Inc., which operates under the name DEBT Box. 

SEC Moves to Drop DEBT Box Case 

In an interesting development, the United States Securities and Exchange Commission (SEC) filed a motion yesterday, expressing plans to dismiss its case against DEBT Box without prejudice. 

Fox Business journalist Eleanor Terrett shared the development on the X platform yesterday. 

?NEW: The @SECGov has just filed a brief in the @DebtBox case saying that it intends to dismiss the lawsuit against the company.

The SEC is choosing dismissal rather than face possible sanctions from the judge for misleading the court in order to secure a restraining order and… pic.twitter.com/ByxkG6prV4

— Eleanor Terrett (@EleanorTerrett) January 30, 2024

Recall that the SEC suffered heavy criticism in November after a federal court threatened to sanction its lawyers for misleading the court to obtain a restraining order and seize the company’s assets. 

As reported earlier, the court ordered the SEC to explain why its lawyers should not be sanctioned for providing misleading arguments. 

In its recent motion, the SEC noted that while its lawyers should have been more forthcoming with the court, it did not think sanctions were necessary to tackle the issues. 

Per the SEC, the best way forward is to dismiss the lawsuit without prejudice. 

“Thus, the Commission has authorized the filing of a motion to dismiss this action without prejudice, which will be forthcoming,” the commission said. 

With the SEC planning to dismiss the lawsuit without prejudice, it leaves the door open for the agency to refile the case in the future. 

Pro-Crypto Legal Experts React 

As expected, the SEC’s move to withdraw the DEBT Box case stirred reactions among pro-crypto lawyers, including Attorneys Deaton and Murphy. 

Commenting, Attorney Deaton said the move is a disgrace that falls under the leadership of SEC Chair Gary Gensler. 

The pro-XRP lawyer recounted a few incidents where courts have embarrassed the securities regulator in crypto-related cases. According to Deaton, the Ripple judge described SEC lawyers as hypocrites who lack faithful allegiance to the law. 

In addition, Deaton recalled how the US Court of Appeals for the District of Columbia Circuit held that the SEC’s denial of Grayscale’s Bitcoin spot ETF was arbitrary and capricious.  

Attorney Deaton said despite these embarrassing findings, the SEC lawyers still acted in complete disregard for justice. 

“Now, you run away, attempting to shield your unethical lawyers from facing the very law they swore to uphold,” he added. 

Top legal expert MetaLawMan also reacted, describing the SEC’s withdrawal motion as “astounding.” MetaLawMan noted that he had never experienced anything like the SEC’s recent action in over three decades of representing different clients in court against the commission. 

However, MetaLawMan speculated that the SEC’s voluntary dismissal motion could potentially expose the lawyers involved in the misrepresentation to sanctions. 

Astounding.

I've never seen anything quite like this in more than 30 years of representing clients adverse to the SEC.

I actually think this voluntary dismissal could make it more likely that the SEC lawyers involved in the misrepresentations to the Court will be sanctioned. https://t.co/n57tebkPIr

— MetaLawMan (@MetaLawMan) January 30, 2024

Recall that the SEC initially filed the DEBT Box case in July, alleging that the company defrauded unsuspecting victims to the tune of $49 million. With the SEC planning to drop the case, it remains to be seen whether its lawyers will be sanctioned for misleading the court.