United States Securities Exchange Commission lawyers sanctioned by a Federal Judge for Abuse of Power and Misrepresentation of Evidence.

• In plain English they lied to the court and the judge is very angry.
• So the lawyers have been sanctioned for lying and misrepresentation of evidence. These are potentially career ending sanctions depending on what lawyer you ask.

Background:

• The SEC filed a motion with the Federal Court in Utah asking for the unprecedented legal manuever the right to freeze all the assets and bank accounts of a cryptocurrency company DeadBox during the early stages of the SEC investigation. The SEC was granted this motion, but upon the Federal Courts Review of the evidence the SEC provided the Court to Support this unprecedented seizure of assets and frezing of bank accounts it found the file filled with falsehoods and misrepresentations of the facts supplied by the SEC to the Court. Basically lies and falsehood.

The Judges exact words were...

"Each piece of support the Commission offered in seeking the TRO – and then later reiterated in defending the TRO – proved to be some combination of false, mischaracterized, and misleading," the order said. "Further, the Commission not only repeated and affirmed its misrepresentations in the face of contrary evidence, it presented new falsehoods to the court in an effort to subtly shift from its previous misrepresentations without acknowledging its previous errors."

Pause to clarify

• First, in my opinion, lawyers don't normally accuse another lawyer of lying, they accuse another lawyer of Misrepresenting the Facts. So when the Judge says misrepresentations, in plain English I think he is accusing them of lying.
• Second, one example of the misrepresentations in this case is that the SEC stated in the SEC Application for the Court Order to freeze the bank accounts of the cryptocurrency company DeadBox; that the company had closed 30 bank accounts and moved money overseas to steal investors funds. However the Judge found that the SEC's own reports filed with the Application for the Court Order indicate that the Company had actually closed NO bank accounts. The Judge states the SEC "misrepresented" this evidence in it's application for the court order to freeze the companies bank accounts with the statement the company had closed 30 bank accounts.
• Wow that sounds like a Giant Lie to me.
• And this is only one misrepresentation the Judge found in the SEC application for the court order.
• But it is this type of misrepresentation that led to the sanctions against the SEC lawyers.

This brings us to the News Headlines

• In an unprecedented move a Federal Court Judge in Utah has not only ruled against the SEC in a court case, but issued sanctions against the SEC lawyers in the case. The judge wrote in an 80 page ruling: the SEC was guilty of Abuse of Power. Additionally the judge stated that the SEC lawyers provided statements misrepresenting the evidence and statements supported by no evidence. Additionally the judgement stated that the SEC lawyers made misrepresentations which were directly contradicted by their own evidence files. The judge ruled that these statements by the SEC lawyers were at best "misrepresentations" and he couldn't discount that they were intentional attempts to deceive the court. Those are strong words, basically saying the SEC lied without actually using the words lie, lied, or lying.
• But in plain English, I feel the judge was stating the lawyers were lying to the court.
• And in unprecedented and historic fashion this judge issued sanctions against these lawyers.
• This reportedly has never happened before and lawyers on Twitter now X are reporting that the sanctioned SEC lawyers will potentially never work Securities cases again.
• Some lawyers on Twitter now X are saying these are potentially career ending santions, as these lawyers should never be able to provide legal arguments before Federal Judges again, because the judge is saying they provided false testimony and false interpretations of evidence, in order to obtain a court order to freeze the assets of the company.

My humble opinion

• These are incredibly serious charges and they provide support and vindication to the claims made by several cryptocurrency companies: the SEC abuses it's power, and the SEC doesn't operate fairly and honestly.
• I wonder if these sanctions could result in criminal charges, as lying to a judge is illegal.
• Perhaps the judge feels that career ending sanctions are enough punishment.
• However I assume in a country where you can sue anyone for anything, these sanctions provide a very good basis by which a company which was harmed by the SEC could use these rulings to file damages charges against the SEC.

New Media Reports Provide many details

• Read the following quotes from the News Media:

Fortune Magazine

Judge slams SEC for ‘gross abuse of power’ in crypto case, imposes sanctions
BYLEO SCHWARTZ
March 18, 2024 at 12:12 PM HST

Picture below is U.S. Securities and Exchange Commission (SEC) chairman Gary Gensler

Picture by DREW ANGERER—GETTY IMAGES

source

On Monday, a federal judge took the unprecedented step of imposing sanctions on the Securities and Exchange Commission related to a lawsuit the agency brought against the Utah-based crypto company DEBT Box in July.
source

Forbes,com

SEC Blasted by Judge for ‘Gross Abuse of Power’ in Crypto Case
Federal judge says agency undermined process in DEBT Box case
He sanctioned the SEC, ordered it to pay company legal fees
By Austin Weinstein and Allyson Versprille
March 18, 2024 at 2:27 PM HST
A federal judge in Utah took the extremely unusual step of sanctioning the Securities and Exchange Commission, saying that the regulator abused its authority in a case against crypto platform Digital Licensing Inc., known as DEBT Box.
The SEC’s conduct “constitutes a gross abuse of the power entrusted to it by Congress and substantially undermined the integrity of these proceedings and the judicial process,” Robert Shelby, a federal district court judge in Salt Lake City, said in an 80-page legal filing on Monday. He also ordered the agency to pay DEBT Box’s attorney’s fees and other costs related to the restraining order that the regulator had sought against the crypto platform.
source

Reuters News Agency

US judge criticizes SEC for "gross abuse" of power in dispute with blockchain
Reuters
March 19, 20243:53
March 19 (Reuters) - A U.S. federal judge said the Securities and Exchange Commission (SEC) had engaged in "gross abuse of the power entrusted to it by Congress" in its dispute with blockchain technology firm Digital Licensing, which does business as DEBT Box.
The regulator had sued the blockchain company in July last year, accusing it of defrauding investors, opens new tab of nearly $50 million.
Chief District Judge Robert Shelby said on Monday the SEC acted in "bad faith" and was "deliberately perpetuating falsehoods" in its efforts to obtain an asset freeze and a temporary restraining order against the company.
source

Salt Lake Tribune

• This is an extensive account of the main points of the 80 page ruling by the Federal Court Judge and these things will shock you.

Utah judge blasts ‘gross abuse of power’ by federal prosecutors in Draper crypto fraud case
SEC attorneys were formally sanctioned for misleading evidence in its case against DEBT Box
(Andrew Harnik | AP) A federal judge sanctioned SEC attorneys on Monday, March 18, 2024, for presenting misleading evidence in a case against Utah cryptocurrency company DEBT Box.
(Andrew Harnik | AP) A federal judge sanctioned SEC attorneys on Monday, March 18, 2024, for presenting misleading evidence in a case against Utah cryptocurrency company DEBT Box.
By Shannon Sollitt
March 20, 2024, 8:29 a.m.

A federal judge in Utah has sanctioned attorneys for the Securities and Exchange Commission, saying in a scathing ruling that their argument to freeze the assets of a Utah-based cryptocurrency company included misleading evidence.
SEC lawyers last July successfully petitioned for a temporary restraining order and an asset freeze against DEBT Box, arguing the company’s executives had suddenly moved assets to foreign banks and suggested the movement was evidence the company intended to “evade law enforcement.”
In a ruling issued Monday, Utah U.S. District Court Chief Judge Robert J. Shelby said the SEC argument was incomplete and partially untrue. Shelby ruled the attorneys for the federal financial watchdog presented misleading evidence to obtain the restraining order, and failed to correct the record when given the chance.
The SEC lawyers’ conduct, Shelby wrote, “constitutes a gross abuse of power entrusted to it by Congress and substantially undermined the integrity of these proceedings and the judicial process.”
Several times in his 80-page ruling and analysis, Shelby called the SEC’s conduct “troubling” and said attorneys acted in “bad faith” to get their way. The federal agency now will have to pay DEBT Box and codefendants’ attorneys’ feels and any other legal costs associated with the temporary restraining order and asset freeze.
But Shelby also denied, for now, the SEC’s motion to dismiss the case.
An SEC spokesperson said the agency is reviewing Shelby’s decision. Attorneys for the SEC said in earlier filings that they did not intend to mislead the court, and argued there is still evidence DEBT Box has harmed, and continues to harm, investors.
Richard Hong, the lead attorney for Draper-based DEBT Box, declined to comment on the case Wednesday, citing ongoing litigation.
Fraud allegations
The SEC filed a complaint against DEBT Box and roughly two dozen associated individuals and business entities last summer, alleging the cryptocurrency brokers lied to investors about “virtually every aspect” of their business, and lined their pockets with fraudulent earnings.
Material deleted....
In its complaint, unsealed in July, the SEC claimed DEBT Box’s principals — brothers Jason and Jacob Anderson, Schad Brannon and Roydon Nelson — were not registered cryptocurrency brokers and were therefore selling “sham” tokens, cryptocurrencies with no real value.
“And rather than use the investor funds generated from the sale of the node software licenses to support those underlying businesses,” the complaint said, “Defendants misappropriated the funds for their own personal gain — buying luxury vehicles and homes, taking lavish vacations, and showering themselves and their friends with cash.”
Restrained and frozen
The SEC asked Shelby in July to grant a temporary restraining order against DEBT Box and its associates, and to freeze the company’s assets. Shelby was prepared to decline, according to his Monday judgment, claiming SEC attorneys had not proven certain such essential elements as “irreparable harm.”
SEC attorneys doubled down, the judgment says. Central to the SEC’s argument for obtaining a restraining order was the fact that DEBT Box and its principals had moved money overseas, including to a bank in the United Arab Emirates.
“[Defendants] have said in videos that the reason they are doing this is to avoid SEC jurisdiction,” an SEC attorney argued in July.
Then, in a “final attempt” to convince Shelby to grant a restraining order, SEC attorney Michael Welsh told the judge that he was “reminded by investigative staff ... that even in the last 48 hours Defendants have closed additional bank accounts, and I believe the number, I don’t have it in front of me, was around 33 bank accounts.”
That revelation was “the most significant evidence” that DEBT Box associates were trying to evade authority and hide funds, Shelby said — and it was enough to convince the judge to issue the restraining order.
But it was not entirely true, the sanction order says — and when confronted about its factual accuracy, SEC attorneys did not correct the record.
“Not only were no accounts closed in the 48 hours before the hearing, no accounts were closed in all of July 2023,” Shelby wrote in his sanction oder.
SEC attorneys eventually admitted their statement was “inaccurate” and based on a “misunderstanding,” according to court documents, but argued the fact was “immaterial” to the case at-large.
Shelby did not buy it.
“Given these circumstances, it is difficult to accept that Commission staff did not believe the misrepresentation was material,” Shelby wrote. “Indeed, it likely was the most material and impactful representation made in support of the Commission’s ... Application.”
Shelby also determined the SEC had taken statements made by Jacob Anderson out of context. SEC attorneys pointed to a YouTube video in which Anderson admitted DEBT box had moved its operations to Abu Dhabi so that it would be “under the jurisdictional control of Abu Dhabi, not the SEC.” The statement was presented as evidence defendants were trying to evade U.S. authority by moving assets overseas.
Instead, the court concluded, the statement was made in response to a viewer question about the “‘SEC squeeze on crypto’ and its potential implications for DEBT Box.” Anderson had said Abu Dhabi provided a “clearer regulatory framework” for cryptocurrency brokers. DEBT Box had, indeed, moved its operations overseas, but the video was not evidence of evasion, Shelby ruled, nor did it prove defendants were “in the process of moving assets or funds overseas.”
Shelby reversed the restraining order and freeze in November, after reviewing the evidence and determining it was, at best, misleading. The SEC apologized in December and asked the court not to impose sanctions, according to court documents.
But Shelby ruled the SEC acted in “subjective bad faith,” and that sanctions were appropriate.
“The critical evidence the Commission offered to obtain and defend the ex parte TRO [temporary restraining order] lacked any basis in fact, yet the Commission nonetheless advanced that evidence in deliberately false and misleading ways,” Shelby wrote. “Further, this was done for an improper purpose — to appropriate and abuse the power of the court to impose extraordinary relief upon Defendants, relief the Commission would not have been entitled to had it been candid with the court.”
Case [not] dismissed
Shelby also denied the SEC’s motion to dismiss the case entirely, for now. The SEC filed the motion in February so that regulators could “complete its review of the record” and, eventually, re-file.
The agency said it would refile the case against DEBT Box, and argued there is still evidence “that retail investors have been and are being harmed,” according to the motion.
Shelby said the SEC’s motion did not satisfy Utah district court’s local requirements and offered “no legal authority or argument in support of its request.”
So the SEC’s case against DEBT Box moves forward, for now. The SEC argued in its motion that there is still evidence “that retail investors have been and are being harmed.”
source

Yahoo Finance

• This report by Yahoo FInance reiterates the judgement against the SEC and sanctions placed.

SEC Committed 'Gross Abuse of Power' in Suit Against Crypto Company, Federal Judge Rules.
A federal judge ruled that the U.S. Securities and Exchange Commission must pay legal costs for DEBT Box, a Utah-based crypto company the SEC brought a suit against, finding that the regulator had committed a "gross abuse of power" in its efforts to secure a temporary restraining order.
The SEC sued the crypto project last year alleging fraud, securing a temporary asset freeze and restraining order against the company. According to the SEC, DEBT Box was telling customers it was selling licenses to mine cryptocurrency, but was in reality just creating tokens with code. DEBT Box filed to dissolve the temporary restraining order, claiming the SEC had misled the court about the company moving its funds and closing its bank accounts.
In an order Monday, Chief Judge Robert Shelby, from the District of Utah, wrote that the SEC's attorneys misled the court both in applying for a temporary restraining order as well as afterward, when DEBT Box filed to dissolve the order, noting at the end that the order is focused on the TRO question, and not the underlying case.
The SEC will be required to pay defendants' and receivers' fees as part of the court's sanctions, the judge wrote.
"Each piece of support the Commission offered in seeking the TRO – and then later reiterated in defending the TRO – proved to be some combination of false, mischaracterized, and misleading," the order said. "Further, the Commission not only repeated and affirmed its misrepresentations in the face of contrary evidence, it presented new falsehoods to the court in an effort to subtly shift from its previous misrepresentations without acknowledging its previous errors."

Summary

• This is an amzing and historical event.
• The SEC lawyers were caught lying to the court and the court has called them out not ony for lying, but for making statements directly contradicted by the SEC's own information.
• For example they accused the company of closing 30 bank accounts to move cash overseas to justify freezing the companies bank accounts, when it's own Agents reported there were no bank accounts closed, not 30, not 20, not 10, none. The SEC made other similar misrepresentations of the facts to get the court order and now the court is furious.

In my opinion...

• The SEC has been operating in a zone where it was the only oversite for it's actions. But now they are operating in the judicial zone in the courts. This zone is traditionally friendly territory for the SEC because they are usually enforcing clear laws against bad actors. However they have suffered a series of lega defeats in the courts for operating outside the laws and operating in an unprecedented fashion.

Posted Using InLeo Alpha