SEC Again Seeks Dismissal of Crypto Fraud Case After Judge’s Sanctions

News | May 1, 2024 By:

On Monday, April 15, 2024, the Securities and Exchange Commission (SEC) again sought dismissal of its enforcement action against several groups it had accused of operating a fraudulent cryptocurrency scheme that defrauded investors of at least $49 million. The motion came after a federal judge in Utah imposed sanctions on the SEC last month for presenting false information when initially seeking a temporary restraining order against the defendants.

The SEC had filed a complaint against Digital Licensing Inc., which operates as DEBT Box, as well as iX Global LLC and over a dozen other individuals and companies in July 2023. In its complaint, the SEC alleged that the defendants engaged in a scheme starting in 2021 where they sold “node software licenses” to investors, claiming the licenses allowed buyers to mine various cryptocurrencies like bitcoin. However, the SEC argues the cryptocurrencies were not truly being mined as promised and that funds from investors were used for personal expenses rather than the stated business purposes.

Following its original complaint, the SEC sought a temporary restraining order to freeze the defendants’ assets, which was granted in July 2023. However, in November, Chief Judge Robert Shelby dissolved the restraining order after finding the SEC presented false information regarding things like bank account closures and the movement of funds overseas when initially obtaining the order. In March 2024, Judge Shelby imposed sanctions against the SEC for acting in bad faith during its application for the restraining order.

In its latest motion on April 15th, the SEC acknowledged all but one of the staff assigned to the case had been replaced and said the new team needed time to fully analyze the record and testimony before determining whether refiling was warranted. If granted, the SEC said it would provide status updates to the court within 120 days. While some defendants consented to dismissal without prejudice, others like DEBT Box signaled they would oppose the SEC’s request.

The SEC fraud case remains ongoing, with the defendants having filed several motions to dismiss and the SEC filing an opposition last December. Judge Shelby has yet to rule on the SEC’s most recent motion to dismiss or the outstanding defense motions. If dismissed, the SEC would have to either refile under the existing docket number or a new one if it decided to pursue claims again after further review.

Please contact BlockTribune for access to a copy of this filing.