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SEC Sanctioned for ‘Bad Faith’ in Crypto Fraud Lawsuit

In a stinging rebuke, a federal judge has sanctioned the U.S. Securities and Exchange Commission for acting in “bad faith” by misrepresenting evidence in its case against a cryptocurrency firm accused of fraud.

SEC Sanctioned for Misrepresentation and Abuse of Power

In an order issued on Mar. 18, Judge Robert J. Shelby of the U.S. District Court for the District of Utah blasted the SEC for its “gross abuse of power” in its lawsuit against Debt Box, a company the agency claimed operated a $50 million fraudulent crypto mining scheme.

The judge found the SEC put forward “deliberately false and misleading” claims when it sought an emergency asset freeze against Debt Box last August, including the allegation the company had wired $720,000 overseas and was planning to flee to the United Arab Emirates.

The ruling represents a central black eye for Wall Street’s top regulator and its embattled crypto enforcement unit, led by Gary Gensler. It also calls into question Gensler’s aggressive “regulation-by-enforcement” approach to the cryptocurrency markets.

In its initial complaint, the SEC accused Debt Box of defrauding investors through the fraudulent offer and sale of “promissory notes” via a crypto mining program that never mined any cryptocurrency. The agency alleged investors were shown fake mining activity through “magic” software.

To obtain an asset freeze, SEC lawyers claimed that Debt Box had wired $720,000 to the U.K. and was planning to flee to Dubai. However, the judge found those funds had been moved between domestic U.S. bank accounts.

Gurbir Grewal, head of the SEC enforcement unit, later apologized to the court for the inaccuracies and acknowledged his staff had failed to correct them promptly. He outlined new mandatory training procedures to prevent similar lapses.

Despite the sanctions, the core allegations of fraud against Debt Box remain pending before Judge Shelby. However, the ruling will likely embolden critics who say Gensler’s SEC has been over-criminalizing behavior in the crypto industry without first establishing clear regulatory guideposts.

Jerry Rolon

After working for 7 years as a Internet Marketer, Jerry now aims to explore the journalistic side of Internet. With his impeccable knowledge in this domain, he churns out some of the best news articles from the internet niche. With respect to acedamics, Jerry earned a degree in business from California State University.

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