- Federal judge threatened to sanction SEC lawyers after their “false” arguments prompted a restraining order against crypto firm Debt Box
- SEC accused of making “materially misleading” statements about offshore asset transfers to obtain “unjustified” restraining order freezing assets
- Judge ordered SEC to provide proof to support claims or agency’s lawyers could face sanctions; outcome could weaken SEC’s position as broader lawsuit against Debt Box advances
The SEC filed a lawsuit against Debt Box and its executives in September, alleging that the company was running an unregistered securities offering disguised as an initial coin offering (ICO). The SEC requested an emergency restraining order to freeze the defendants’ assets.
The Restraining Order
The judge granted the SEC’s request for a restraining order based on arguments that the defendants planned to move assets offshore. However, Debt Box’s lawyers say the SEC made false claims about supposed plans to move assets outside the country.
In a court filing, Debt Box accused the SEC of making “materially misleading” statements that led to the “unjustified” order freezing assets. The company said the SEC’s request for the restraining order relied on a mischaracterization of conversations between former Debt Box executives and fake creditors created by the SEC.
The judge said she was “very concerned” about the allegations that the SEC may have misled the court. She ordered the SEC to provide proof to support its claims about offshore transfers or else the agency’s lawyers could face sanctions.
The SEC’s Response
The SEC claims it acted in good faith and its request for the restraining order was justified. The agency said the fake creditors were created as part of an undercover investigation and their discussions with former Debt Box executives revealed a legitimate risk that assets would be moved offshore.
The SEC asked the court to deny Debt Box’s request for sanctions. The agency said sanctions would be unjustified based on the facts known at the time the restraining order was requested.
The judge has yet to decide whether sanctions will be imposed on the SEC’s lawyers. The dispute over the restraining order comes as the SEC’s broader fraud lawsuit against Debt Box moves forward.
The outcome of the sanctions issue could influence further proceedings in the case. If the judge finds the SEC misled the court, it could weaken the agency’s position as the lawsuit advances.