SEC tenders apology over DEBT Box case

SEC enforcement director Gurbir Grewal wrote that federal attorneys “fell short” of standards in suing crypto start-up Digital Licensing following a Utah court’s reprimand. 

The United States Securities and Exchange Commission (SEC) admittedly made incorrect statements during enforcement action targeted at DEBT Box, alleging that the blockchain firm defrauded thousands of investors of almost $50 million. 

Commission counsel made a representation during the July 28, 2023 hearing that, unbeknownst to him at the time, was inaccurate. Commission attorneys failed to correct that statement when they learned of the inaccuracy.

SEC filing

The 27-page SEC filing responded to Judge Robert J. Shelby’s court order demanding that the commission explain its materially false and misleading representations supporting its request for a restraining order on DEBT Box. 

DEBT Box offered node licenses, allowing customers to receive mining revenue. Users did not have to run an actual mining setup, to which the securities regulator said DEBT Box lied about operating a real-world business.

SEC attorneys had claimed the crypto firm was moving its asset overseas amid litigation to escape U.S. jurisdiction and undermine proceedings. The commission initially secured a restraining order; however, a judge revoked the decision in October.

Grewal said his division took measures to address the SEC’s lapses in judgment, including forthcoming mandatory staff training and assigning senior attorneys to the case. However, the SEC argued that sanctions were unwarranted and maintained that the crypto company’s assets should remain frozen. 

Reactions from crypto stakeholders on social media suggest the outcome may be leveraged as a lightning rod highlighting the SEC’s aggressive stance toward crypto under chairman Gary Gensler. Industry-wide sentiment insists that Gensler’s commission has regulated through lawsuits rather than clear rules. 

Crypto exchange Coinbase petitioned the SEC to galvanize rule-making from the securities watchdog. The petition was denied as existing financial policies were deemed sufficient to oversee cryptocurrencies and digital assets.