SEC to Withdraw Case Against Crypto Startup DEBT Box Following Admission of Inaccuracy

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Ruholamin Haqshanas

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Ruholamin Haqshanas

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Ruholamin Haqshanas is a contributing crypto writer for CryptoNews. He is a crypto and finance journalist with over four years of experience. Ruholamin has been featured in several high-profile crypto...

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January 31, 2024 05:08 EST

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The Securities and Exchange Commission (SEC) has moved to withdraw its lawsuit against crypto startup DEBT Box after admitting to making inaccurate statements in court.

The agency filed a lawsuit against Digital Licensing Inc., operating as DEBT Box, in July last year.

However, it has now informed Utah U.S. District Court Judge Robert Shelby of its intention to dismiss the case without prejudice, allowing the SEC to refile it at a later date if necessary.

“The Commission has determined that the best way to proceed is to dismiss this action without prejudice,” SEC lawyers said in a filing on Tuesday.

“Thus, the Commission has authorized the filing of a motion to dismiss this action without prejudice, which will be forthcoming.”

SEC Made Inaccurate Statements Regarding DEBT Box

The SEC acknowledged in late December that it had made inaccurate statements and conceded that it had not met the expectations of accuracy and candor in court.

Prior to that, Judge Shelby criticized the agency’s lawyers and demanded an explanation for the “false or misleading” statements made by the SEC, claiming that DEBT Box was attempting to move assets offshore to evade regulatory oversight.

I've just read over the documents in the Debt Box case and this is absolutely shocking behavior. The SEC went to a judge seeking an emergency order to paralyze several businesses and blatantly misrepresented facts to get it before anyone on the other side could defend themselves.

— David "JoelKatz" Schwartz (@JoelKatz) December 5, 2023

The SEC also argued against imposing sanctions on its lawyers, as ordered by Judge Shelby.

The agency stated that while it recognized its attorneys should have been more forthcoming with the court, it believed that sanctions were unnecessary to address the issue.

The SEC’s lawsuit against crypto startup DEBT Box alleged that the company had defrauded thousands of investors of at least $49 million. The fraud allegedly happened through “node licenses” which allowed owners to receive revenue from mining 11 tokens that were never actually mined.

While the case is set to be dismissed for now, the SEC retains the option to revisit the matter in the future.

SEC Continues Regulation by Enforcement

Over the past year, the SEC has filed numerous lawsuits against crypto firms, with SEC Chair Gary Gensler consistently asserting that most cryptocurrencies should be classified as securities.

For one, the agency initiated a civil case against Sam Bankman-Fried, co-founder of FTX. 

In addition to the case against Bankman-Fried, the SEC filed lawsuits against other major crypto players, including Binance, its CEO Changpeng Zhao, and Coinbase.

All three entities have denied any wrongdoing and have requested the dismissal of the regulator’s cases.

Meanwhile, Gensler has been a vocal critic of crypto as of late, warning about the crypto industry’s noncompliance.

In September last year, he acknowledged that while not all tokens can be prejudged, a significant portion of the crypto industry falls under securities laws but remains non-compliant.

“This crypto space that much of it, without prejudging any one token, much of it is under the securities laws, but unfortunately, much of it is also non-compliant,” he said.

He claimed that crypto has had a destructive impact on millions of investors who have suffered losses, emphasizing that these problems could potentially extend beyond the crypto industry and affect the broader financial system.