SEC Enforcement Director Gurbir Grewal wrote that federal prosecutors suing cryptocurrency startup Digital Licensing “fell short” of standards after a rebuke from a Utah court.
The U.S. Securities and Exchange Commission (SEC) made misrepresentations during an enforcement action against DEBT Box, alleging that the blockchain company defrauded thousands of investors out of nearly $50 million.
The committee’s attorney stated at the July 28, 2023 hearing that the information was inaccurate, something he was unaware of at the time. Commission lawyers failed to correct the statement when they learned of its inaccuracies.
SEC filing
The 27-page SEC filing is a response to a court order from Judge Robert J. Shelby requiring the commission to explain the materially false and misleading statements it made in support of its request for an injunction against DEBT Box.
DEBT Box provides node licenses to enable customers to receive mining profits. Users did not have to run an actual mining setup, and securities regulators found DEBT Box lied about its actual business operations.
SEC lawyers have argued that cryptocurrency companies are moving assets overseas amid lawsuits aimed at undermining the process outside of U.S. jurisdiction. The Commission initially obtained an injunction. But a judge overturned the decision in October.
Grewal said his department has taken steps to address the SEC’s ruling mistakes, including future required staff training and assigning lead attorneys to the case. However, the SEC called the sanctions unfair and argued that the cryptocurrency company’s assets should remain frozen.
Reactions from cryptocurrency stakeholders on social media suggest that the results could be used as a lightning rod to highlight the SEC’s aggressive stance on cryptocurrencies under Chairman Gary Gensler. The sentiment across the industry is that the Gensler Commission regulated through litigation rather than clear rules.
Cryptocurrency exchange Coinbase has petitioned the SEC to stimulate rulemaking by the securities watchdog. The petition was denied as existing financial policies were deemed sufficient to oversee cryptocurrencies and digital assets.