SEC Tries to Overturn Debt Fund Charges Again

The United States Securities and Exchange Commission (SEC) has taken another step toward dismissing a lawsuit against a cryptocurrency mining software company that is treating the issue as a debt fund regarding digital licensing. The agency responded to the court's motion to dismiss the case without prejudice, allowing the agency to sue the debt fund again.

The U.S. District Court for the Northern District of Utah sanctioned the SEC for “gross abuse of discretion” and rejected its first attempt to dismiss the case without prejudice. He also ordered Debt Box to pay back legal fees. Debt Fund asked the court not to dismiss the case without prejudice, saying the move was a ploy to avoid permanent layoffs.

The SEC has argued that the ability to reexamine an action is in the interest of debt fund investors, and precedent shows that the court “ordinarily must grant plaintiffs' motion to dismiss without prejudice.” He explained.

“The SEC seeks a dismissal without prejudice to allow the new team of attorneys assigned to the case to review the case file and take further investigative steps before deciding whether or not to pursue a new complaint.”

The SEC's top attorneys on the case resigned after the agency was disbarred by a court.

Related: US Senators Call SEC Actions in Debt Box ‘Unthinkable'

If the dismissal is granted without prejudice, the debt fund sought to file 11 conditions against the SEC if it filed suit. The SEC has agreed in whole or in part in most cases. One of the conditions was to use Wells' notice — issued by the SEC that he intended to file a lawsuit — and complete investigative filings. The SEC sought to limit the material it provided with the announcement.

The SEC objected to a condition that would have required the filing of all material claimed in the case and required a representative to be present at unsolicited interviews in the investigation. Finally, he objected to a condition precedent to the release of potentially exculpatory information from the investigation—information favorable to the defendant.

The debt fund was accused of defrauding investors of $50 million and selling unregistered securities in the form of licenses to mine their software for digital assets.

The SEC temporarily froze the company's assets in August. The agency was granted this decision after the court found that the company had used a “false narrative” regarding its plans to relocate outside the United States. The SEC expressed its “deep regret” over the action.

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