SEC admits to misstatement of facts in case against crypto firm Debt BOX

On Dec. 22, the U.S. Securities and Exchange Commission (SEC) admitted to making inaccurate statements in an ongoing case against Debt BOX, a cryptocurrency firm accused of significant fraud.

The SEC alleges that Debt BOX defrauded investors of almost $50 million. Though its core claims remain, the SEC admitted today that its legal counsel unknowingly made inaccurate representations during a July 28 hearing that allowed it to obtain a restraining order, asset freeze, and other restrictions against Debt BOX.

The regulator admitted to failings throughout its organization, stating:

“The [SEC] and its attorneys fell short of [expectations] here … Commission attorneys failed to correct that statement when they learned of the inaccuracy. Commission counsel also failed to make clear that certain representations were inferences from the facts known to them rather than directly supported factual assertions.”

The SEC said it “deeply regrets these errors” and promised to prevent similar mistakes. It said that it has assigned senior staff and an experienced attorney to the current matter, adding that it will carry out additional accuracy training.

Gurbir S. Grewal, the SEC’s Director of the Division of Enforcement, admitted to error in a separate filing. He wrote: “I understand that the Division fell short of these standards in this case, and I apologize for that shortfall.”

The SEC pleaded with the court to refrain from applying sanctions, arguing that the circumstances surrounding their errors do not warrant a misconduct penalty. It stated that its staff have not engaged in any bad faith conduct that could support sanctions.

Key error concerned account closures

In one erroneous claim, SEC counsel Michael Welsh testified that 33 of Debt BOX’s bank accounts had been closed 48 hours before his testimony.

The SEC, in its current admission, said that this was based on a misunderstanding between Welsh and another SEC member, Laurie Abbott. Abbot claims that she told Welsh that SEC staff had learned of several account closures over the 48 hours. However, even that statement was inaccurate, as the SEC was previously aware of many of those account closures, contrary to Abbot.

The regulator admitted that only 24 accounts were ever closed and that none were closed in July 2023, let alone during the 48 hours before Welsh’s testimony. Over the 48 hours, staff learned of balance decreases without closures that took place in July 2023. Other dissipations took place over several years.

The SEC also attempted to justify certain other errors concerning assertions about Debt BOX’s supposed attempts to relocate assets, block regulators from viewing its social media, move business operations overseas, and drain certain bank accounts. Though the SEC maintains certain facts, it admitted that many of Welsh’s inferences are not justified by those facts.

The above issues have been at hand for some time now. District Judge Robert Shelby, who presides over the case, reprimanded SEC attorneys and warned of possible sanctions on Dec. 1. Terra Labs, in a separate case, attempted to cite the SEC’s errors to show that its own case should be dismissed.