SEC Under Fire As US Judge Threatens Sanctions Over 'Misleading' Claims In Crypto Case

The U.S. Securities and Exchange Commission (SEC) is currently under fire as a top federal judge has threatened the financial regulator with sanctions in a lawsuit against the cryptocurrency firm Debt Box.

U.S. Chief District Judge Robert Shelby ordered the major Wall Street regulator to explain the statements it made while implementing and maintaining a temporary restraining order (TRO) against the crypto project DEBT Box.

The chief judge serving in the district court of Utah also issued a stern warning to the SEC regarding a potential sanctions for "misleading" court proceedings in the lawsuit against the crypto firm.

The SEC sued DEBT Box in July, accusing the business of scheming to sell unregistered securities called node licenses since 2021. The regulator also accused DEBT Box of illegally moving assets and investors' funds overseas, and obtained an initial freeze order of the crypto firm's bank accounts as part of its case against the business.

In August, the SEC announced that it "obtained a temporary asset freeze, restraining order, and other emergency relief against" DEBT Box. But it was dissolved in October after Judge Shelby found several SEC statements for the order "false or misleading."

Judge Shelby expressed concern that "the Commission made materially false and misleading representations" in the context of arguing for the TRO and emphasized that the TRO was an "extraordinary relief" that led to the appointment of a Temporary Receiver with "full power over all funds, assets, collateral, premises . . . choses in action, books, records, papers and other property belonging to" DEBT Box, its affiliates, as well as subsidiaries.

Regarding potential sanctions, Judge Shelby wrote that it "shall be limited to what is sufficient to deter repetition of such conduct" and may include monetary penalties, but could also be limited to "directives of a nonmonetary nature."

The SEC is due to respond in 14 days. When asked for comment on the issue, the regulator's spokesperson said, "We are in receipt of the order to show cause and will respond to the court as directed."

The SEC has been very busy executing enforcement regulations throughout the year, especially in the cryptocurrency industry.

In addition to lawsuits against centralized crypto exchange giants Binance and Coinbase, the SEC also classified multiple crypto assets as securities.

The latest crypto exchange to be charged by the financial regulator is major crypto exchange platform Kraken.