U.S. SEC Admits to Making Inaccurate Statement in Crypto Fraud Case After Judge Issues Warning - The Daily Hodl

U.S. SEC Admits to Making Inaccurate Statement in Crypto Fraud Case After Judge Issues Warning – The Daily Hodl

Time Stamp: December 23, 2023 2:45 PM

The U.S. Securities and Exchange Commission (SEC) has copped to making an inaccurate statement in an ongoing crypto fraud case after being questioned by a judge.

In July, the regulator obtained a temporary asset freeze, restraining order and other emergency relief against Digital Licensing Inc., a Utah-based company that was doing business under the name “DEBT Box.”

The SEC alleges the company and its founders operated a fraudulent scheme by selling fake “node licenses” to investors that the company promised would generate crypto assets via mining. The company allegedly raised around $50 million and unspecified amounts of Bitcoin (BTC) and Ethereum (ETH).

The SEC obtained the temporary restraining order (TRO) and asset freeze in part by arguing that DEBT Box and its founders were funneling investor funds into luxury purchases and accounts overseas.

The defendants, however, filed a motion to dissolve the temporary restraining order granted by the court, claiming the SEC misrepresented facts in its allegations.

The restraining order was dissolved at a hearing in October, and in November, the case’s judge requested an explanation from the SEC about the alleged misrepresentations.

In a response filed on Thursday, the SEC acknowledges that one of its lawyers “made a representation” that was inaccurate in the initial July restraining order hearing.

Michael Welsh, the SEC’s lead trial counsel, claimed during the hearing that the defendants had closed around 33 bank accounts in the 48 hours leading up to the court date.

The regulator, however, now acknowledges that Welsh’s number was derived from a miscommunication. In reality, the SEC explains, only 24 bank accounts were closed, and none were shuttered the month of the hearing.

The SEC does note, however, that the balances of several bank accounts owned by certain defendants were substantially decreased in July, but not closed. The regulator also acknowledges multiple instances where it erroneously presented interpretations and inferences as facts.

The SEC says it takes the judge’s concerns seriously and “deeply regrets” its errors. The regulator also notes that it’s taking steps to avoid repeating those mistakes.

“Among other measures, the Enforcement Director has assigned senior attorneys from the Commission’s Denver Regional Office to supervise this matter going forward and has assigned an experienced trial attorney from the Denver Regional Office to lead the litigation team. The Division of Enforcement will also conduct mandatory training for all Division staff involved in investigations and litigation about the duty of accuracy and candor and the duty to correct any inaccuracies as soon as they come to light.”

The SEC, however, argues that the errors weren’t severe enough to merit sanctions.

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