United States District Judge Robert Shelby has issued a strong warning to Securities and Exchange Commission (SEC) lawyers, indicating potential sanctions for alleged deceptive statements in a legal case against Digital Licensing Inc., also known as DEBT Box, a prominent cryptocurrency company.

The SEC had filed a lawsuit against DEBT Box in a federal court in Utah, accusing the company of deceiving investors by around $50 million through the sale of unregistered securities called “node licenses.”

However, Judge Shelby’s ruling revealed significant inconsistencies in the SEC’s case.

Initially, the SEC, led by attorney Michael Welsh, persuaded the court to freeze DEBT Box’s assets, claiming the company was moving to Dubai to avoid U.S. regulatory oversight.

Later, it was discovered that these claims were inaccurate, as there were no bank account closures, and a purported overseas transfer of $720,000 turned out to be domestic.

Judge Shelby expressed concerns about the SEC lawyers’ conduct, suggesting that misrepresenting facts and the failure of other team members to correct these inaccuracies may have violated federal court Rule 11(b), requiring evidence-backed factual claims.

In response, Shelby issued a “show cause order,” demanding the SEC to provide reasons why they should not face penalties for their actions.

The complexity of the case is highlighted by a TRM Labs report supporting the SEC’s main claim that DEBT Box deceived investors regarding mining tokens.

However, the defense counsel has not yet provided a statement on the issue, and the SEC has acknowledged the order, planning to respond within the specified two-week timeframe set by Judge Shelby.

This development is a crucial moment in the legal process, revealing the intricacies of cryptocurrency regulation and underscoring the importance of legal accountability in high-stakes financial litigation.

Ripple lawyer John E. Deaton expressed little surprise at the alleged dishonesty of the SEC, suggesting that the agency’s lawyers may have personal biases in crypto cases.

Deaton called for a subpoena against the financial regulator. His colleague, Ripple chief technology officer Stuart Alderoty, has also outlined concerning patterns observed in the SEC’s actions, raising further questions about the agency’s conduct in cryptocurrency-related matters.