On December 22, the US Securities and Exchange Commission (SEC) admitted to making false statements in an ongoing case against Debt BOX, a cryptocurrency company accused of significant fraud.
The SEC alleges that Debt BOX defrauded investors of nearly $50 million. While the key allegations still stand, the SEC today admitted that its legal counsel unknowingly made false statements during a hearing on July 28, allowing it to obtain a restraining order, asset freeze and other restrictions against Debt BOX.
The regulator admitted shortcomings across the organisation, stating:
“The [SEC] and her lawyers fell short [expectations] here… The Commission’s lawyers failed to correct that statement when they learned of the inaccuracy. The Commission’s counsel also failed to clarify that certain statements were inferences from the facts known to them and did not directly support factual assertions.”
The SEC said it “deeply regrets these errors” and vowed to prevent similar errors. It said it has appointed senior staff and an experienced lawyer for the current case, adding that it will provide additional accuracy training.
Gurbir S. Grewal, director of the SEC’s Division of Enforcement, admitted in a separate filing that he made mistakes. He wrote, “I understand that the division fell short of these standards in this case, and I apologize for that shortfall.”
The SEC urged the court to refrain from imposing sanctions, arguing that the circumstances surrounding their errors do not justify a misconduct penalty. It stated that its staff has not engaged in bad faith conduct that could support sanctions.
The main error concerned the closure of accounts
In one false claim, SEC attorney Michael Welsh testified that 33 of Debt BOX’s bank accounts were closed 48 hours before his testimony.
The SEC said in its current admission that this was based on a misunderstanding between Welsh and another SEC member, Laurie Abbott. Abbot claims she told Welsh that SEC staff had learned of several account closures in the past 48 hours. But even that statement was inaccurate, as the SEC was previously aware of many of these account closures, unlike Abbot.
The regulator admitted that only 24 accounts have ever been closed and none have been closed in July 2023, let alone in the 48 hours before Welsh’s testimony. Over the course of the 48 hours, staff learned that a balance sheet decline occurred in July 2023 with no closures. Other dissipations took place over a number of years.
The SEC also sought to justify certain other errors related to claims about Debt BOX’s alleged attempts to move assets, block regulators from viewing their social media, move business operations abroad, and drain certain bank accounts. While the SEC maintains certain facts, it conceded that many of Welsh’s inferences are not justified by those facts.
The above problems have been going on for some time. District Judge Robert Shelby, who is presiding over the case, reprimanded SEC lawyers and warned on December 1 of possible sanctions. Terra Labs, in a separate case, tried to cite the SEC’s errors to argue that its own case should be dismissed.