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SEC Ordered to Pay $1.8M in Legal Fees After "Gross Abuse" of Power in Debt Box Case

Debt Box was accused by the SEC of defrauding investors of at least $49 million but a US federal Judge sanctioned the regulator for its "gross abuse of power."

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The Securities and Exchange Commission (SEC) has been ordered by a US federal judge to cough up $1.8 million in legal fees in its case against Debt Box.

Utah District Court Judge Robert Shelby ruled on Tuesday that the regulator must pay the attorney and relevant legal fees after dismissing the SEC's case against the crypto firm without prejudice.

“In this Order, the court ensures the final amount of fees requested by Defendants and the Receiver is reasonable,” the filing said.

In another filing, the judge stated, “The Commission argues dismissal without prejudice is appropriate because it will protect investors and the public interest, and will not cause Defendants legal prejudice.”

Debt Box described the resolution as a "significant step towards justice and transparency."

In April, two SEC lawyers were forced to resign after a federal judge slammed the regulator for its "gross abuse" of power in one of its cases.

The SEC had accused crypto platform Digital Licensing Inc AKA Debt Box and its executives of defrauding investors of at least $49 million. Robert Shelby, the federal district court judge in Salt Lake City who is hearing the case, froze the company's assets and put the firm into receivership at the SEC's request.

However, Shelby has since discovered that the regulator may have made “materially false and misleading representations.” Shelby went on to sanction the regulator for “gross abuse of the power entrusted to it by Congress” and ordered the SEC to pay some of Debt Box’s attorney’s fees.

Michael Welsh and Joseph Watkins who served as lead attorneys on the case stepped down this month after the SEC informed them they would be terminated if they remained.

Even the US is Calling Out SEC’s ‘Abuse of Power’ on Crypto, Resignations Triggered
Michael Welsh and Joseph Watkins who served as lead attorneys in the SEC’s case against crypto platform DEBT Box have stepped down as scrutiny of the regulator intensifies

The judge faulted Welsh's arguments and Watkins' evidence. Welsh told the judge that Debt Box was closing bank accounts and transferring assets overseas - a claim which turned out to be false. An SEC investigator blamed the mistake on a miscommunication, leading to an apology from Welsh.

SEC enforcement chief Gurbir Grewal apologised for the agency's conduct and said new attorneys will be appointed to the case with mandated training.