US judge criticizes SEC for "gross abuse" of power in dispute with blockchain firm

FILE PHOTO: Signage is seen at the headquarters of the U.S. Securities and Exchange Commission (SEC) in Washington, D.C.

(Reuters) - A U.S. federal judge said the Securities and Exchange Commission (SEC) had engaged in "gross abuse of the power entrusted to it by Congress" in its dispute with blockchain technology firm Digital Licensing, which does business as DEBT Box.

The regulator had sued the blockchain company in July last year, accusing it of defrauding investors of nearly $50 million.

Chief District Judge Robert Shelby said on Monday the SEC acted in "bad faith" and was "deliberately perpetuating falsehoods" in its efforts to obtain an asset freeze and a temporary restraining order against the company.

The regulator, for instance, accused DEBT Box of trying to move its assets overseas. Citing a YouTube video from the company, it alleged that DEBT Box was in the process of moving its operations to the United Arab Emirates to evade U.S. securities laws.

Lawyers for DEBT Box refuted the allegations, saying the comments made in the YouTube video were just discussing the benefits of operating in the UAE versus the uncertain regulatory environment in the U.S.

The judge also sanctioned the SEC, ordering it to pay attorneys' fees and legal costs of DEBT Box. The order, however, "should not be construed as offering any views on the underlying merits of the case" against DEBT Box and was focused only on the regulator's misconduct, the judge wrote.

The SEC is often accused of adopting a heavy-handed approach towards crypto firms, and its chair Gary Gensler is a fierce skeptic of the industry.

He has been criticized by executives in the crypto space for jurisdictional overreach, and some have warned that the hostile regulatory environment in the U.S. could lead to major industry players moving offshore.

An SEC spokesperson said the regulator was reviewing the decision.

(Reporting by Niket Nishant in Bengaluru; Editing by Arun Koyyur)