The court has issued a warrant for an explanation from the SEC on the “false and misleading” material it used to get a temporary restraining order.
U.S. Securities and Exchange Commission lawyers are facing questions from a federal court who believes they lied to get a temporary restraining order. The judge has asked the lawyers to clarify their actions.
Judge Robert Shelby of Ohio has issued an order to show cause, demanding that the SEC provide evidence as to why its attorneys should not face sanctions. Shelby has reason to believe that the SEC provided misleading and false information in July 2023 when it decided to freeze the assets of Digital Licensing and DEBT Box, based on conflicting accounts.
Following allegations that DEBT Box, doing business as Digital Licensing, offered an unregistered security and deceived investors out of “at least $49 million,” the legal team representing the SEC said that the defendants were trying to transfer assets and investor funds abroad.
In its pursuit of a TRO, the SEC presented proof of foreign money transfers via bank records and account closures. Its stated goal in doing so was, among other things, to seize the firm’s assets.
According to Shelby’s writing, the defendants were known to have closed 33 bank accounts in under 48 hours when these remarks were made. This, together with allegations that DEBT Box and its associates attempted to prevent the SEC from accessing their social media platforms, was sufficient to issue a TRO for 10 days.
In September, two sets of defendants—including relief defendants—filed motions to dissolve the TRO. In their original applications, both groups argued that the SEC had deceived the court.
In July 2023, no bank accounts were canceled. Shelby said that the SEC “tacitly acknowledged” that the defendants were not responsible for closing these accounts, but rather the banks. October 2023 saw the dissolution of the TRO.
During the dissolution hearing, Welsh told the court that the SEC was unaware of the reasons for the closure of the bank accounts and lacked proof of any offshore transfers of funds after January 2023. According to Shelby, neither Welsh nor the SEC addressed the precise matter of his remarks on the closure of 33 bank accounts within two days.
Shelby claimed that despite the fact that two members of the investigation team were not present on-screen during the ex parte TRO hearing, Welsh’s apparent misrepresentation “further troubled the court.”
Experts in the field have seen a “troubling pattern” on the part of the SEC as of late, and Thursday’s event is just one more example.
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