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Ripple CTO David Schwartz Accuses SEC of Mishandling Debt Box Case

Jimmy Aki
Last updated: | 2 min read
Debt Box Case
Source: YouTube/UNCHAIN Convention

Ripple’s Chief Technology Officer (CTO), David Schwartz, recently criticized the US Securities and Exchange Commission (SEC) via his official X (formerly Twitter) handle, alleging questionable illegal activities in the Debt Box case.

Schwartz expressed his shock at the revelations he uncovered while examining the Debt Box documents.

He highlighted that the top securities regulator obtained an emergency restraining order against the defendants by misrepresenting facts to the courts. This action was taken without allowing the defendants an opportunity to present a proper defense.

Given this breach, Schwartz claimed that the SEC inadvertently paralyzed several crypto businesses with this questionable conduct as funds were seized.

The Debt Box case, which kicked off in July 2023 following an ex parte temporary restraining order (TRO), led to an illegal freeze of the defendants’ assets without a thorough investigation.

According to its court filing with the US Court in the District of Utah, the SEC alleged that Digital Licensing Inc., also known as Debt Box, defrauded investors of $50 million following its sales of unregistered securities, which they termed “node licenses.”

Meanwhile, Schwartz’s online outburst has led to a debate in the crypto and broader financial ecosystem.

Popular crypto legal practitioner John E. Deaton tweeted that the TRO application by the SEC meant Debt Box’s legal representatives were completely unaware, preventing them from challenging the agency’s claims.

He also pointed out that a TRO application is a 100% one-sided proceeding that eliminates the opposing counsel.

Deaton shed light on the behind-the-scenes events, revealing that the SEC argued notifying the defendants could prompt them to move the assets offshore, making it challenging to seize them and potentially harming affected investors.

As a result, Judge Netburn was convinced that the government agency was paying “faithful allegiance to the law,” leading to the approval of its application.

However, subsequent events have shown that the SEC was only interested in having its way without caring about the legal procedures involved.

Judge Netburn has since cautioned the agency and is considering legal sanctions to curtail its excesses.

Powell Labels SEC’ US Top Decel’

The SEC has been the most engaged regulatory body in the crypto space. The Gary Gensler-led government body has continued to sue crypto-facing businesses and label several crypto assets as “securities.”

The regulatory body’s fervency has led to widespread questioning of its intentions, with Kraken CEO Jesse Powell going as far as characterizing it as the ‘US top decel’ in a tweet on November 21, following yet another regulatory move against the centralized crypto operation.

According to Powell, the SEC is intentionally hindering blockchain innovation in the country with its lack of regulatory clarity and enforcement actions.

Furthermore, he advised other crypto-facing businesses to seek pasture elsewhere to avoid becoming targets of the SEC’s regulatory actions.

Taking heed of this advice, fellow crypto trading platforms such as Coinbase have already made strategic moves, establishing a European headquarters in Ireland to enhance its global reach.