The U.S. Securities and Exchange Commission (SEC) has been facing backlash over its treatment of the digital asset industry. In the latest move, a federal judge has strongly criticized the commission’s conduct of crypto firm Digital Licensing Inc., also known as DEBT Box.
US SEC’s conduct questioned
As per the report. the judge expressed concern over what he deemed “materially false and misleading representations” made by the SEC to freeze millions of dollars in assets belonging to DEBT Box.
The US SEC filed a complaint against DEBT Box alleged that the project defrauded investors of around $50 million by selling unregistered securities known as “node licenses.” In order to freeze assets, the commission used an ex parte application. It is a legal process where the defendant is not initially informed or able to challenge the proceedings.
However, U.S. District Judge Robert Shelby granted the SEC’s request based on the agency’s lawyer, Michael Welsh. It claims that DEBT Box was actively closing bank accounts to relocate operations to Abu Dhabi, beyond U.S. regulatory reach. The legal proceedings revealed that these claims were untrue. Judge Shelby found that no bank accounts were closed in the specified timeframe, and the company had transferred much of its operations months before.
The report added that the judge criticized the SEC attorney’s misrepresentation. He stated it was “troubled” by the lack of correction from other parties during the proceedings. It is important to note that the judge noted that the SEC accused DEBT Box of blocking investigators from viewing its social media sites without providing evidence that the company was aware of any investigation.
Show Cause order issued
Show cause order issued by Judge Shelby demands the SEC to provide reasons why the court should not impose sanctions for its behavior. While such orders are unusual against government agencies, the judge expressed concern that the commission’s actions undermined the integrity of the proceedings.
The SEC has faced increased scrutiny for handling crypto-related cases, with ongoing lawsuits against major players like Binance, Coinbase and Ripple. Critics argue that the agency, under Chairman Gary Gensler, has been aggressive in its approach to the crypto industry. The judge’s order comes at a critical time for the SEC and may further fuel industry claims of bias and overreach.
The SEC has two weeks to respond to the show cause order. An SEC spokesperson stated, “We are in receipt of the order to show cause and will respond to the court as directed.”
