Judge Orders SEC To Pay $1.8 Million, Dismisses 'Bad Faith' Debt Box Case

The U.S. Securities and Exchange Commission (SEC) has been ordered by a federal judge to pay over a million dollars for its controversial case against cryptocurrency firm Digital Licensing, which goes by the business name Debt Box.

Judge Robert Shelby dismissed the case and ordered the Wall Street regulator to pay roughly $1.8 million in legal fees and related costs as requested by Debt Box and other defendants. Only one defendant's petition for sanctions on the SEC was denied, as per a Tuesday court filing.

"Akin to the attorney fee sanction under § 1927 in Hamilton, the sanction here is the result of bad faith conduct on the part of certain Commission attorneys. Defendants have already been the victim of this misconduct and they should not be 'revictimized' by being required to establish the prevailing local rates for this type of litigation," Shelby wrote.

Shelby also quoted a ruling in mid-March wherein the court found that the SEC "engaged in bad faith conduct in obtaining and defending" the temporary restraining order (TRO) it sought against Debt Box in July last year.

The SEC filed its TRO application simultaneously with a receivership request and a complaint it filed against the crypto project for alleged violations of federal securities laws. It also requested that Debt Box assets be frozen, which the court approved.

The court dissolved the TRO and receivership in October after the court found that some of the statements made by the regulator's legal counsel in the case were "false or misleading." At the time, Shelby warned of potential sanctions over the findings.

By December, the SEC had filed to get its lawsuit against Debt Box dismissed, saying its legal counsel "should have been more forthcoming with the Court" but that sanctions were not necessary as it would review allegations and evidence on the case.

The crypto project blasted the regulator for the said move, accusing the SEC for wanting to be treated "differently before federal courts than those that it regulates or attempts to regulate."

Several lawmakers have criticized the SEC for its handling of the case. A group of Republican senators with the Senate Banking Committee said they were concerned over the Commission's "unconscionable" actions, especially for a federal agency regularly involved in "highly consequential legal procedures."

They said the regulator's actions regarding the Debt Box case "suggests other enforcement cases brought by the Commission may be deserving of scrutiny."

The SEC has been under fire in recent months amid its ongoing lawsuits against crypto firms including some of the largest companies in the emerging sector such as Ripple, and its succeeding Wells Notices issued to prominent firms in the industry, including the crypto arm of Robinhood.