Dismissal of lawsuits and avoidance of sanctions

The U.S. Securities and Exchange Commission (SEC) announced on January 30 that it will soon file a motion to dismiss the lawsuit against crypto asset (virtual currency) company Digital Licensing Inc. (commonly known as DEBT Box) in the U.S. District Court for the District of Utah. reported. The SEC filed a response on December 21 of last year admitting that the lawsuit contained inaccurate statements.

Utah District Court Judge Robert Shelby ruled on November 30 that the SEC made “materially false and misleading statements” in the lawsuit, in violation of Rule 11 of the Rules of Civil Procedure. issued an order to disclose reasons why sanctions should not be imposed.

In a briefing to the court in December, the SEC apologized for the following errors in deliberations held in July:

• SEC lawyers unknowingly claimed inaccuracies at the time
• Even after it became clear that the statement was inaccurate, he did not correct it.
• Made statements based on inferences rather than based on supported facts

connection:US SEC admits mistakes in lawsuit against virtual currency companies and apologizes

History of the trial

In July of last year, the SEC filed a lawsuit alleging that DEBT Box defrauded thousands of investors of more than $49 million (approximately 7.2 billion yen) by selling unregistered securities called “node licenses.” It has filed an application seeking a temporary restraining order (TRO) against the company.

After a hearing with the SEC, the Utah District Court issued a TRO freezing DEBT Box’s assets, but in September the defendants filed a motion to revoke the TRO. At a hearing on the petition, the court concluded that the TRO was inadvertently issued because the SEC did not show that failure to issue the TRO would cause “irreparable harm,” and the court issued the TRO in October. Canceled.

Later, in a December court order, Judge Shelby expressed concern that the SEC had made “materially false and misleading” representations regarding the TRO application and warned the regulator could face sanctions. Was.

connection:US federal judge orders SEC to disclose reasons for allegedly suing virtual currency company with insufficient evidence

DEBT Box claims

On January 12, DEBT Box filed a document with the court requesting sanctions against the SEC’s lawyers, who were ordered by the court to disclose reasons. The defendants allege that as a result of the TRO, DEBT Box’s native tokens plummeted by more than 56%, causing confusion for approximately 300,000 users in more than 130 countries.

In addition, as a result of the TRO, the company’s loans were terminated and it was unable to pay its employees’ salaries, but credit card companies and banks reportedly refused to provide support. One of the defendants had his own lending and real estate business go bankrupt as a result of being turned down by lenders despite having completed millions of dollars in transactions.

SEC’s claim

The SEC appears to have filed a second response in response to DEBT Box’s request for sanctions from the court.

In its reply, the SEC asks that the lawsuit against DEBT Box be dismissed “without prejudice.” If the request is granted, the SEC could re-indict the defendants at a later date.

The SEC’s “dismiss with prejudice,” meaning that the SEC’s loss is final and the possibility of re-prosecution is cut off, is “intentional”. “This is an extreme sanction appropriate only in cases of illegal activity.” “No such intentional misconduct occurred,” the lawsuit says.

Although the SEC recognizes that “the commission’s lawyers should have been more transparent with the court,” the court’s sanctions against the SEC were “neither appropriate nor necessary.” insisted.

Why sanctions are not necessary

The SEC argues that there is no need for court sanctions because it has taken “extensive corrective actions” to “ensure that the concerns raised by the court do not occur again.”

• Requires special training for all enforcement officers involved in investigations and litigation on “accuracy, honesty, and prompt correction of inaccuracies as they become known.”
• Appoints experienced counsel from SEC Denver office to oversee this matter

A court hearing against the SEC and DEBT Box is scheduled for March 7th.

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