U.S. Senators Chastise The SEC In Letter To Gary Gensler, Citing “Unethical And Unprofessional” Handling Of DEBT Box Case

BySteven Walgenbach

Updated: 09 February 2024

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Republican lawmakers chastised the U.S. Securities and Exchange Commission (SEC) in a letter to chair Gary Gensler that called the regulator’s handling of a lawsuit against DEBT Box ”unethical and unprofessional.”

The criticism was made in a Feb. 7 letter that said the court had said the SEC had made “materially false and misleading representations…and undermined the integrity of the proceedings” in the case against Digital Licensing Inc., also known as DEBT Box.

The document was signed by five senators on the Senate Banking Committee, including J.D. Vance (R-Ohio) and Cynthia Lummis (R-Wyo.).

“We are greatly concerned by the Commission’s conduct in this case,” the letter said. “It is unconscionable that any federal agency—especially one regularly involved in highly consequential legal procedures and one that, under your leadership, has often pursued its regulatory mission through enforcement actions
rather than rulemakings—could operate in such an unethical and unprofessional manner.”

SEC Lawyers Make False Statements During DEBT Box Case

In a July, 2023 filing, the SEC said DEBT Box had closed 33 bank accounts in the previous 48 hours. The agency then stated that the defendants were blocking investigators from viewing social media pages, leading to the court, at the agency’s request, to freeze the company’s assets.

The letter noted that this effectively shut down DEBT Box, and caused its native token to crash by more than 56 percent.

The SEC’s Enforcement Division Director, Grubir Grewal, later admitted to misrepresentations that were unknown at the time, but the letter says the SEC’s attorneys failed to correct that statement when they learned of the inaccuracy.

I've just read over the documents in the Debt Box case and this is absolutely shocking behavior. The SEC went to a judge seeking an emergency order to paralyze several businesses and blatantly misrepresented facts to get it before anyone on the other side could defend themselves.

— David "JoelKatz" Schwartz (@JoelKatz) December 5, 2023

“Regardless of whether Commission staff deliberately misrepresented evidence or unknowingly presented false information, this case suggests other enforcement cases
brought by the Commission may be deserving of scrutiny,” the letter said. “It is difficult to maintain confidence that other cases are not predicated upon dubious evidence, obfuscations, or outright misrepresentations.”

SEC Officials Are Taking Corrective Training

The SEC has since moved to dismiss its case against DEBT Box, and has said “agency officials have taken and are taking broader corrective action to ensure the concerns raised by the court do not arise again.” It added that “mandatory” training will be held for “all Enforcement Division staff involved in investigations and litigation.” The training will focus on “the importance of candor and the duty to promptly correct any inaccuracies.”