SEC Ordered to Pay $1.8M in Legal Fees for Improperly Obtained Restraining Order Against Crypto Project Debt Box

News | June 7, 2024 By:

On Tuesday, May 28, 2024, a Utah federal judge upheld over $1.8 million in attorney and receiver fees against the U.S. Securities and Exchange Commission (SEC), relating to its improperly obtained temporary restraining order against the cryptocurrency project Debt Box.

Chief U.S. District Judge Robert Shelby sided with the majority of fee requests submitted by more than a dozen defendants facing SEC fraud and securities registration claims over their work on Debt Box. Judge Shelby ruled that the defendants were justified in calculating out-of-town counsel fees without adjusting to local market rates.

“Defendants have already been victimized by this misconduct and should not be ‘revictimized’ by having to prove prevailing local rates,” Judge Shelby stated. He added that the defendants selected counsel of their choice and should not face additional penalties for that decision.

While allowing the SEC to withdraw its case to review internal processes, with the option to refile, Judge Shelby mandated that any renewed action be brought directly before him.

The sanctions stem from Judge Shelby’s March order that found SEC attorneys made misrepresentations to obtain the initial emergency restraining order against Debt Box. That TRO appointment of a receiver and attorneys generated nearly $747,000 in approved fees.

Additionally, Judge Shelby approved around $1.1 million in legal costs for over a dozen defendants, including $565,000 for Debt Box counsel Morrison Cohen; $34,000 for local counsel Kunzler Bean & Adamson; and $252,000 for counsel representing iX Global defendants.

Fees were also awarded to attorneys representing related projects like FAIR, individual defendants, and relief defendants. However, Judge Shelby denied an incomplete $30,000 request from uninvolved businesses.

While courts typically use the lodestar method to calculate reasonable fees, Judge Shelby ruled straight fee recovery was warranted due to the SEC’s sanctioned conduct. The order stated defendants should not be penalized for mounting a good defense against novel securities issues.

Judge Shelby dismissed the SEC’s case without prejudice as requested but mandated that any renewed action be filed directly with his court. This addressed defense concerns around SEC “gamesmanship.”

Though the defendants sought complete dismissal and repayment of all legal fees, Judge Shelby determined the early dismissal did not unfairly affect them and existing work would likely not need duplicating.

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