A new court filing with the Utah District Court on January 30, 2024, has revealed that the US Securities and Exchange Commission (SEC) is now seeking to drop its ongoing lawsuit against Digital Licensing Inc., doing business as DEBT Box, after reportedly misleading the court to obtain an order last year.
While the SEC admitted it made mistakes in its new court filing, the commission asked the court to reject demands from the defendant for additional sanctions, arguing that a dismissal without prejudice is the only sanction it should face considering the severity of its blunder.
Recall that the SEC, last year, obtained a temporary restraining order (TRO) against Digital Licensing Inc., allowing the agency to freeze its assets. Presiding Judge Robert Shelby eventually ruled that the SEC presented misleading evidence while presenting their case, ordering the commission to show the court why the SEC should not get sanctioned.
The SEC’s recent court filing is in response to Judge Shelby’s ruling. Note that DEBT Box had (earlier) filed a motion calling for the court to sanction the SEC, claiming the agency’s actions caused a “complete disruption,” affecting the cryptocurrency exchange’s services in over 130 countries.
What Happened Between the SEC And DEBT Box?
On September 26, 2023, the United States Court of the Northern District of Utah issued temporary restraining and asset freeze orders against Digital Licensing Inc. (DEBT Box). The court issued the orders after the SEC demonstrated that the defendant had (allegedly) orchestrated a $49 million scam and was planning to move its operations outside the United States.
The SEC (quickly) enforced the orders, severely impacting DEBT Box’s business before the company could challenge the order in court. When Digital Licensing eventually had the opportunity to challenge the accusations, it became apparent that the SEC had fabricated evidence to convince the court of its earlier arguments, leading to the dissolution of the orders issued against DEBT Box earlier.
Also, the presiding judge, now almost convinced the SEC acted in bad faith, ordered a show of cause for the SEC to explain why the Utah District Court shouldn’t sanction the SEC’s attorneys.
Contending the SEC made false and misleading representations to obtain orders against DEBT Box, Judge Robert Shelby also accused the commission of undermining the integrity of the proceedings through its several falsehoods.
DEBT Box Requests for Sanctions Against the SEC
Note that DEBT Box had earlier responded to Judge Shelby’s show of cause order, arguing for a series of sanctions against the financial regulator. Among its many requests, DEBT Box asked for a complete dismissal of the case with prejudice, citing the numerous missed opportunities as justification for massive financial sanctions against the commission.
“Jason Anderson’s private lender for real estate with whom he has done multiple millions of dollars’ worth of deals, has given him notice they are no longer willing to do any more loans for him or his entities,” DEBT Box’s filing partly read, explaining the impact of the court orders on the company and its associates.
DEBT Box also alleged that it had to shut down its service for over 300,000 users in at least 130 countries, causing the firm to lose users and money.
The SEC Seeks Dismissal Without Prejudice
While responding to Judge Robert Shelby’s show of cause order, the SEC admitted its wrongdoing while arguing that the best next step is a dismissal without prejudice. The SEC also claimed in its filing that a motion to dismiss the lawsuit without prejudice is forthcoming, urging the judge to assent to the motion.
The commission also claimed it would take corrective action by training all officials involved in the case to prevent a repeat while arguing that no further action is needed. Dismissal with prejudice, the regulator argued, will effectively prevent reopening the investigation, potentially harming the investing public.
Both parties will appear in the Utah District Court on March 7 for a hearing on the dismissal motion.
While we expect the judge to agree with the SEC and dismiss the case without prejudice, DEBT Box will likely also win some compensation during the March hearing. Most observers expect this to be monetary sanctions against the SEC. We will have to wait and see about that.
