SEC Tries Again to Dismiss Debt Box Lawsuit with Option to Refile
The U.S. Securities and Exchange Commission (SEC) has taken another step toward dismissing a lawsuit against Digital Licensing, a cryptocurrency mining software company that does business as Debt Box. The agency filed a response to the court’s request to dismiss the case without prejudice. The agency can then sue Debt Box again.
The U.S. District Court for the Northern District of Utah has rejected the first attempt to sanction the SEC for “egregious abuse of power” and dismiss the case without prejudice. It also ordered that Debt Box be reimbursed for its legal costs. Debt Box asked the court not to dismiss the case without prejudice, calling it a ruse to avoid permanent layoffs.
The SEC argued that the ability to refile the suit is for the benefit of Debt Box investors, and precedent states that courts “should generally grant” plaintiffs’ motions to dismiss without prejudice. It said:
“The SEC seeks dismissal without prejudice so that the new team of attorneys assigned to the case can analyze the case file and take additional investigative steps before deciding whether to pursue a new complaint.”
The SEC’s lead lawyers in the case resigned after court sanctions.
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If the dismissal without prejudice was granted, Debt Box sought to impose 11 conditions if the SEC refiled the case. The SEC has agreed to all or part of these terms. One condition was that Wells use a notice (a warning from the SEC that it intends to file charges) and complete an investigative file. The SEC attempted to limit the materials it would provide with the notice.
The SEC objected to conditions requiring Debt Box to provide all materials subpoenaed in the case and for representatives to attend non-subpoenaed investigative interviews. Finally, we objected to conditions that would produce potentially exculpatory information (information favorable to the defendant) in the investigation.
Debt Box was accused of defrauding investors of $50 million and selling unregistered securities in the form of licenses to mine digital assets using its software.
The SEC temporarily froze the company’s assets in August. That decision led to sanctions against the agency when a court ruled the company had used “false narratives” to justify its plans to move out of the United States. The SEC expressed “deep regret” over the action.
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