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Federal Court Sanctions SEC for ‘Bad Faith’ in Fraudulent Cryptocurrency Scheme Lawsuit Against Debt Box

A federal court in the United States has imposed sanctions on the Securities and Exchange Commission (SEC), accusing it of “bad faith” in a legal battle against the firm Debt Box.

This decision stems from the SEC’s attempt to dismiss a case it had initiated, which was rebuffed by Judge Robert J. Shelby.

Shelby criticized the agency for misleading the court over the evidence it presented to obtain a temporary restraining order (TRO) and an asset freeze against Debt Box in August.

Judge Shelby condemned the SEC’s actions as a “gross abuse of the power” granted by Congress, stating that these actions severely compromised the integrity of the judicial process.

He highlighted that the evidence the SEC claimed to have obtained had no factual basis and was presented in a way that was “deliberately false and misleading.”

As a consequence of this misconduct, Shelby determined that imposing sanctions on the SEC, specifically covering attorneys’ fees and costs incurred due to their actions, was justified.

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He remarked, “The bad faith is inextricable from the abusive conduct and a sanction of attorneys’ fees and costs for all expenses resulting from that conduct is appropriate.”

“The SEC had accused Debt Box of engaging in a $50-million fraudulent cryptocurrency scheme, seeking a TRO and an asset freeze on the grounds that the company had transferred funds overseas and planned to flee to the United Arab Emirates.

However, Shelby later found that the SEC had misrepresented the facts regarding the $720,000 transfer, which had actually occurred within the United States.

Following these revelations, Shelby issued a “show cause order” to the SEC in December, demanding an explanation for their misleading conduct.

Although the SEC admitted its lack of transparency, it contended that sanctions were unwarranted.

Shelby criticized SEC attorney Michael Welsh for his role in misleading the court, noting that Welsh’s failure to correct false statements represented an attempt to obscure the truth.

Austin Campbell, a founder of Zero Knowledge Consulting, argued that SEC staff involved in this misconduct should face termination and emphasized the need for agency reform.

He advocated for personal liability for SEC lawyers, stating, “What is described here is unconscionable for those entrusted with such authority by law.”

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