SEC to close Salt Lake office after ‘gross abuse of power’ in Utah crypto case
The closure of the Salt Lake office follows the case a judge called "deeply troubling," leading to the sanctioning of SEC prosecutors who presented false information and lost $1.8 million in attorneys' fees. The U.S. Securities and Exchange Commission (SEC) will close its Salt Lake office later this year due to a "gross abuse of power" in a case involving Utah cryptocurrency company Debt Box and others. The case was dismissed after it was found that the SEC prosecutors acted in bad faith. The commission's press release did not mention the case, blaming the closure on recently experienced "significant attrition". This comes after misconduct by SEC prosecutors led to the dismissal of a civil fraud case against Utah cryptocurrency brokers and the awarding of $1.8 million in attorney fees. The SEC claimed that the defendants misappropriated funds for their own personal gain and were using them to buy luxury cars and homes, and enjoy lavish vacations. However, a federal judge found these claims were "reckless" and stated that the companies had not actually closed 33 bank accounts in the last 48 hours.
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SEC prosecutors, alleging Draper-based crypto company Debt Box and others engaged in fraudulent business practices, were sanctioned and their case dismissed May 28, after it was found they acted in bad faith. | Yuri A, Shutterstock
The U.S. Securities and Exchange Commission announced Tuesday it will be closing its Salt Lake office later this year.
The news comes just a week after misconduct by commission prosecutors led to the dismissal of a civil fraud case against Utah cryptocurrency brokers and the awarding of $1.8 million in attorney fees.
"Companies were seized, assets were frozen and lives were upended" as a result of misconduct by SEC prosecutors, a federal judge said while dismissing a civil fraud case against Utah cryptocurrency brokers and awarding the brokers $1.8 million in attorney fees.
U.S. Chief District Judge Robert Shelby upbraided the commission, saying it recklessly used "layers of false statements" in a "gross abuse of power," their misrepresentations were "deeply troubling" and they undermined the integrity of the judicial process, before dismissing its case May 28 and ordering payment of fees that will ultimately be financed by taxpayers.
The commission's press release did not mention the case, instead blaming the closure on recently experienced "significant attrition."
"The agency considered its budget and organizational efficiency in deciding to close the office," the SEC said. "All current staff will be aligned to existing SEC organizational components based on their current functions and agency mission needs."
In July 2023, Debt Box, a cryptocurrency broker formerly operating out of Draper, and North Salt Lake financial technology company iX Global, along with a number of other associated parties, were sued by the SEC alleging "an ongoing, sprawling, fraudulent securities offering through which defendants have defrauded thousands of investors of at least $49 million," according to the initial complaint.
Rather than use investors' money to support the business, the SEC claimed "defendants misappropriated the funds for their own personal gain — buying luxury vehicles and homes, taking lavish vacations and showering themselves and their friends with cash."
Critically, the commission told Shelby that business owners were rapidly shutting down their U.S.-based bank accounts and transferring investor funds overseas "to place them beyond the reach of the court."
The SEC requested a short-term emergency order to freeze the assets of the companies in question and effectively take over the management of the companies while the case was being litigated.
The request is a form of extraordinary relief, Shelby said in an opinion, because at that stage in the lawsuit, the court was working with nothing but "unproven allegations," and must take extreme care not to abuse the judicial process.
In oral arguments, the prosecution claimed the companies closed 33 bank accounts in the last 48 hours. It said the companies had drained bank accounts and were transferring money overseas to avoid SEC oversight.
The judge granted the motion to freeze assets and take over the companies, but two months later, found that "each piece of support" the commission offered in its claims "proved to be some combination of false, mischaracterized and misleading."
To make things worse, after the prosecution was put on notice for its misrepresentations, it "nevertheless affirmed those positions and did so in a way that demonstrated an attempt to obfuscate and continue misleading the court rather than acknowledge error," according to court documents.
Shelby wrote a total of 24 accounts had been closed, not the 33 suggested, over a span of two years. The defendants did not close these accounts — the bank did. And the funds were not transferred overseas, they were transferred to a bank headquartered in Sandy.
The judge said these claims were "at best reckless. This was not merely an inaccuracy."
Other accounts were not found to have been drained, they were simply fluctuating over the course of normal business. A YouTube video used as a key piece of evidence was found to have been taken out of context to mislead the court, according to the judge. Inferences were presented as factual, despite having no direct evidence to support them.
Some of the error was attributed to miscommunication, and the SEC said it "sincerely regrets the error" it made when choosing not to notify the court when staff members learned the statements made were "inaccurate in multiple respects."
The judge did not find the argument convincing, and posited that the prosecution "expressly traded on its special standing as a federal agency — reminding the court it had been granted this relief several times in the past 10 years — to demonstrate it could be trusted when asking for this tremendous exercise of judicial authority."
The prosecution then claimed it had "sovereign immunity" from any monetary sanction — an argument Shelby promptly shot down.
Debt Box celebrated the win, posting on social media the dismissal was "a monumental victory, not just for Debt Box but for the entire industry and our dedicated community." Many reacted to the news as though the ruling cleared the company of wrongdoing, but the jubilee may be short-lived.
Shelby wrote that the "order should not be construed as offering any views on the underlying merits of the case," and while the suit was dismissed as it stands, the SEC is able to refile its claims of fraud, so long as it does so with Shelby presiding.
The SEC did not immediately respond to request for comment.
Topik: SEC, Cryptocurrency