SEC lawyers lied to the court and could be punished for it

A US court could impose sanctions on SEC lawyers with possible sanctions for pedaling false arguments in Debt Box case.
Based on the report, the financial regulator misleadingly cajoled the court into imposing a temporary restraining order the crypto firm.
Crypto proponents now see the agency as a menace, with Ripple lawyer saying he is not surprised.

The US Securities and Exchange Commission (SEC) has again presented itself as a menace, this time called out by the court for misleading and cajoling the court with false arguments. The turnout worsens their score sheet and how especially the crypto community perceives them as the latest citing concerns a crypto firm.

Also Read: SEC believes Binance and ex-CEO Changpeng Zhao crimes were similar to fraud witnessed in FTX

SEC lawyers face possible sanctions for undermining integrity of court proceedings in Debt Box case

SEC lawyers are facing possible sanctions after revelations that they lied to the court concerning “existential dangers” relating to crypto firm Debt Box. Reportedly, the financial regulator convinced the court to grant them a restraining order against the cryptocurrency firm using made-up “evidence” that has now proven to have been made up.

Specifically, the legal representatives lied that Debt Box was trying to move its assets as well as funds belonging to its investors overseas. This influenced the court into issuing a restraining order against the firm and almost freezing its bank accounts in August.

As it turns out, Debt Box never moved funds outside the US. The crypto firm has also demonstrated that its bank accounts remain open, contrary to procedure whenever one plans to move their business to another country.

With the lie, therefore, the SEC is called out for “undermining the integrity of the case proceedings,” and causing “irreparable harm” to the reputation of Debt Box project.

Now, unless the SEC can convince the court, led by Chief Judge Robert J. Shelby of Utah, with a legitimate reason why they lied, the agency could be sanctioned, with a penalty that for now remains unknown.

Notably, like Binance and Coinbase, the SEC also has history levying charges on intention to trade unregistered securities against Debt Box, citing “node licenses.”

Crypto proponents come at the SEC

Facts aside, the SEC’s track record of attacks against crypto firms has done much in tarnishing its reputation, so much so that crypto proponents have stood up against it for yet another “false” attack on the crypto community.

Ripple lawyer, John E. Deaton, to begin with, says he is not surprised that the financial regulator has been caught lying, adding, “It appears the lawyers at the SEC have made it personal when it comes to crypto cases.”

Any person surprised a federal judge is considering sanctions against the SEC for lying to the Court, in a case involving crypto, has not been paying attention during the last 3 years.

It appears the Lawyers at the SEC have made it personal when it comes to crypto cases. SEC… https://t.co/1rjLjiTvF3
— John E Deaton (@JohnEDeaton1) December 2, 2023

With this, he calls for a subpoena against the financial watchdog. His colleague, Ripple CTO Stuart Alderoty has also listed a detail analysis of troubling patterns seen with the SEC.

A troubling pattern emerges:
- Court finds the SEC demonstrated “hypocrisy” by making inconsistent arguments to the Court and not acting out of a “faithful allegiance to the law.” SEC v Ripple, 7/12/22
- Court agrees that the SEC defaulted on its duty to respond in good faith to…
— Stuart Alderoty (@s_alderoty) December 1, 2023

The two Ripple executives have a longstanding bad perception of the SEC, sprouting from the agency's numerous attacks not only on payments protocol company, but also on other players in the crypto firm.

SEC vs Ripple lawsuit FAQs

Is XRP a security?

It depends on the transaction, according to a court ruling released on July 14:

For institutional investors or over-the-counter sales, XRP is a security.
For retail investors who bought the token via programmatic sales on exchanges, on-demand liquidity services and other platforms, XRP is not a security.

How does the ruling affect Ripple in its legal battle against the SEC?

The United States Securities & Exchange Commission (SEC) accused Ripple and its executives of raising more than $1.3 billion through an unregistered asset offering of the XRP token.

While the judge ruled that programmatic sales aren’t considered securities, sales of XRP tokens to institutional investors are indeed investment contracts. In this last case, Ripple did breach the US securities law and will need to keep litigating over the around $729 million it received under written contracts.

What are the implications of the ruling for the overall crypto industry?

The ruling offers a partial win for both Ripple and the SEC, depending on what one looks at.

Ripple gets a big win over the fact that programmatic sales aren’t considered securities, and this could bode well for the broader crypto sector as most of the assets eyed by the SEC’s crackdown are handled by decentralized entities that sold their tokens mostly to retail investors via exchange platforms, experts say.

Still, the ruling doesn’t help much to answer the key question of what makes a digital asset a security, so it isn’t clear yet if this lawsuit will set precedent for other open cases that affect dozens of digital assets. Topics such as which is the right degree of decentralization to avoid the “security” label or where to draw the line between institutional and programmatic sales are likely to persist.

Is the SEC stance toward crypto assets likely to change after the ruling?

The SEC has stepped up its enforcement actions toward the blockchain and digital assets industry, filing charges against platforms such as Coinbase or Binance for allegedly violating the US Securities law. The SEC claims that the majority of crypto assets are securities and thus subject to strict regulation.

While defendants can use parts of Ripple’s ruling in their favor, the SEC can also find reasons in it to keep its current strategy of regulation by enforcement.

Can the court ruling be overturned?

The court decision is a partial summary judgment. The ruling can be appealed once a final judgment is issued or if the judge allows it before then. The case is in a pretrial phase, in which both Ripple and the SEC still have the chance to settle.

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