Ripple CLO Reacts as Court Sanctions SEC for ‘Gross Abuse of Power’ in Case Against Crypto Firm

The ruling judge in the DEBT Box case sanctions the SEC for presenting misleading facts.

Robert Shelby, a federal judge in the U.S., has imposed sanctions against the United States Securities and Exchange Commission (SEC) for gross abuse of power and acting in bad faith in its case against Utah-based crypto startup Digital Licensing Inc. (a.k.a. DEBT Box).

Background of the Case

For context, the SEC charged DEBT Box last year, alleging fraud and obtaining a temporary restraining order against the company. The SEC obtained the order after claiming that DEBT Box was moving its funds out of the United States.

However, lawyers for DEBT Box got the judge to dissolve the restraining order last year, claiming that the securities regulator misled the court and provided false evidence. They argued that the SEC failed to mention that its accounts were closed by the banks, adding that the funds were moved to a Credit Union and not out of the country as claimed by the regulator.

While dissolving the restraining order, the judge threatened to sanction the SEC lawyers involved in the saga. Consequently, the SEC filed an action in January 2024, requesting to withdraw the lawsuit without prejudice.

The SEC admitted that its lawyers committed errors while obtaining the restraining order. However, it requested that its lawyers should not be sanctioned for misrepresenting facts.

Court Order

In an order Monday, Judge Shelby held that counsel for the SEC acted in bad faith and misled the court. The judge denied the SEC’s motion to dismiss the case without prejudice, thus implying that the regulator cannot refile the charges against DEBT Box later.

Furthermore, Judge Shelby denied the SEC’s plea for no sanction and ordered the regulator to pay DEBT Box’s legal fees.

“The court imposes sanctions under its inherent authority for the Commission’s abuse of judicial process. The Commission is ORDERED to pay Defendants’ and Receiver’s attorneys’ fees and legal costs arising from the TRO [Temporary Restraining Order] and the Receiver,” the order noted.

Based on this ruling, DEBT Box has a deadline of March 18 to file its petition for fees and set forth its requests in line with the court’s order.

Ripple CLO Reacts

Expectedly, members of the crypto community have taken to the X platform to react to the recent court order. In a tweet today, Ripple’s Chief Legal Officer (CLO) Stuart Alderoty called attention to the court order sanctioning the SEC for presenting false and misleading facts.

Alderoty suggested that the illicit conduct reflects a broader pattern within the SEC under its current leadership and is not just limited to the DEBT Box incident.

“If anyone thinks this conduct by this agency under this leadership is limited to this case, I have a bridge in Brooklyn to sell,” Alderoty remarked.

Today a Federal Court sanctioned the SEC for abusing its unique status to present evidence that was false, mischaracterized, and/or misleading. If anyone thinks this conduct by this agency under this leadership is limited to this case, I have a bridge in Brooklyn to sell. pic.twitter.com/quOFBNmqxK

— Stuart Alderoty (@s_alderoty) March 19, 2024

SEC Suffers Another Defeat Against Crypto Company

The DEBT Box case adds to the list of defeats the SEC has suffered against crypto-related companies.

For instance, in the Ripple case, U.S. District Judge Analisa Torres ruled that most transactions the SEC alleged to be securities were not, including programmatic sales and other distributions.

Although the SEC has publicly criticized the ruling, it has not decided its next course of action. Notably, the court previously denied the commission’s attempt to file an interlocutory appeal challenging the ruling.

Whether the SEC will appeal the verdict once the case ends at the district court level remains to be seen.