DEBT Box Case Is Now Getting More Complicated With SEC Cover-Ups

Key Points:

• The Cedar Innovation Foundation has filed a FOIA request for SEC communications regarding the DEBT Box case, citing concerns about transparency.
• Two SEC lawyers resigned following a federal judge’s criticism of the SEC’s handling of the DEBT Box case, including allegations of misuse of power.

The Cedar Innovation Foundation (CIF), a non-profit dedicated to cryptocurrency education, has initiated a Freedom of Information Act (FOIA) request for the detailed communications between U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler and Enforcement Director Gurbir Grewal in the DEBT Box case.

Lawyers Exit Amid DEBT Box Case Backlash

This move comes in the wake of significant developments within the SEC, including the resignation of two lawyers, Michael Welsh, and Joseph Watkins, following a federal judge’s rebuke of the SEC for alleged misuse of power in a crypto case. Welsh and Watkins were lead attorneys in the SEC’s case against Digital Licensing Inc., known as DEBT Box.

Josh Vlasto, spokesperson for CIF, emphasized the importance of transparency, suggesting that these resignations may be masking deeper issues within the SEC.

Judge Rebukes SEC in DEBT Box Case

In July, the SEC accused DEBT Box and its executives of defrauding investors of $49 million. However, Judge Robert Shelby reversed the asset freeze, citing “materially false and misleading representations” by the SEC, and ordered the agency to pay some of DEBT Box’s attorney’s fees.

Shelby specifically criticized arguments made by Welsh and evidence provided by Watkins, indicating a breakdown in the SEC’s case. Welsh had erroneously claimed that DEBT Box was moving assets overseas, which the court found to be untrue.

In response, SEC enforcement chief Gurbir Grewal apologized for the department’s conduct, announcing new attorney appointments and mandatory training for enforcement staff.

Attorneys for DEBT Box have motioned for the SEC to pay over $1.5 million in fees and costs related to the case. As the situation unfolds, scrutiny of the SEC’s handling of the DEBT Box case intensifies, highlighting the need for accountability and transparency within the regulatory body.