The SEC has a two-week period to respond to the judge’s concerns about their factual and contextual accuracy in their allegations against Debt Box.

A U.S. federal judge has issued a stern warning to attorneys of the Securities and Exchange Commission (SEC).

Judge Robert Shelby of the U.S. District Court in Utah accused SEC lawyers of potentially misleading the court. The accusation centers on the SEC’s actions against crypto firm Debt Box.

US court considers sanctions against SEC lawyers

Judge Shelby’s concerns stem from the SEC’s arguments about Debt Box. The SEC alleged that Debt Box was transferring assets and investor funds overseas. Based on these arguments, the court initially froze Debt Box’s bank accounts. However, Judge Shelby now considers these arguments potentially false and misleading.

The SEC’s claims caused significant repercussions for Debt Box. The company faced a temporary restraining order in August, restricting access to its assets. This order was later dissolved. Debt Box demonstrated that it hadn’t moved funds outside the U.S. or closed its bank accounts as alleged by the SEC.

Sanctions against the SEC lawyers are a possibility. These sanctions are court-imposed penalties for false statements or procedural violations.

SEC says DEBT Box’s node licenses are a sham

Debt Box faced a lawsuit from the SEC in July. The SEC accused them of selling unregistered securities known as “node licenses” since 2021. These licenses were supposedly for mining cryptocurrency, but the SEC alleges they were simply minting crypto using computer code.

In August, the SEC obtained a temporary asset freeze, restraining order, and other emergency relief against Digital Licensing Inc., as part of its lawsuit against the Utah-based entity doing business as DEBT Box and its four principals and 13 other defendants.

Jason Anderson, his brother Jacob Anderson, Schad Brannon, and Roydon Nelson, as well as 13 other defendants, are being sued by the SEC for an allegedly fraudulent scheme to sell crypto asset securities to hundreds of U.S. investors that raised approximately $50 million and unspecified amounts of Bitcoin and Ether.

According to the SEC, the ongoing scheme began in March 2021 to sell unregistered securities they call “node licenses”, which supposedly would generate various crypto asset tokens through crypto mining activity.

Investors were told revenue-generating businesses in a variety of sectors would drive the value of the various tokens DEBT Box mined, resulting in exorbitant gains for investors.

According to the SEC, the node licenses were a sham intended to obscure the fact that the total supply of each token was created by DEBT Box instantaneously using code on a blockchain.

The DEBT Box calls itself “a revolutionary decentralized eco-friendly blockchain technology network of anonymous software operators who, together, create a blockchain eco-system”. The firm states that “a single DEBT Box provides the opportunity to offset mortgages, car payments, credit cards or student loan debt” and its projects are allegedly supported by commodities and assets, such as: gold, silver, platinum, oil, natural gas, agriculture, real estate, and royalties.

Judge questions SEC’s allegations against DEBT Box

In response to Judge Shelby’s findings, the SEC’s lawyers must provide a counter-argument. They have a two-week period to respond to the judge’s concerns about their factual and contextual accuracy in their allegations against Debt Box.

The SEC’s Utah office has not yet commented on the matter. The ongoing legal proceedings highlight the complex regulatory environment surrounding cryptocurrency and blockchain technologies.

This development is part of a broader landscape of regulatory scrutiny in the crypto sector. It reflects the challenges regulators face in adapting traditional legal frameworks to new technological realities. The outcome of this case could have significant implications. It may influence how regulatory bodies like the SEC approach similar cases in the future.