SEC asks to dismiss contested crypto case in which agency faces sanctions over ‘materially false’ statements

In a court filing on Tuesday, SEC attorneys asked Judge Robert Shelby of the Northern Division District Court of Utah to dismiss the agency’s lawsuit without prejudice, meaning the case could be retried, in order to avoid any potential disciplinary actions.

“While the Commission recognizes that its attorneys should have been more forthcoming with the Court, sanctions are not appropriate or necessary to address those issues,” the SEC lawyers wrote.

‘Undermined the integrity of the proceedings’

Under Chair Gary Gensler, the SEC has embarked on a campaign of enforcement actions against companies in the crypto industry, which Gensler has argued operates largely outside of compliance with U.S. securities law.

One lawsuit filed by the SEC over the summer alleged that a firm called DEBT Box had defrauded investors out of nearly $50 million by selling unregistered securities. As part of the action, the SEC successfully obtained a temporary restraining order and asset seizure to stop DEBT Box’s operations. SEC lawyers submitted an ex parte application, meaning the firm was not informed of the action and could not challenge it in court, with agency lawyers arguing that DEBT Box’s defendants were actively trying to stymie SEC efforts.

But subsequent arguments by the defendants shed doubt on those accusations. The agency’s lawyers argued that the defendants had closed bank accounts and transferred operations overseas in response to the SEC’s investigation, and that they had shut down specific social media accounts to hide suspicious activity. Defendants provided evidence refuting these claims.

In response, Shelby ordered the agency to “show cause” for its actions, or prove its basis for the initial ex parte application, restraining order,…