SEC Faces Backlash Over Legal Conduct in XRP and Debt Box Cases

• The court ruled XRP is not a security, relying on evidence from a pro bono attorney who spent $75,000 prosecuting the case.
• A federal judge reprimanded SEC lawyers for lacking “faithful allegiance to the law” and acting hypocritically during the XRP case.
• The SEC continues to face legal defeats, with sanctions in the Debt Box case and accusations of lying and misconduct in court.

The SEC has been criticized for its conduct in high-profile cases such as the XRP and Debt Box. Scholars and critics have concerns with the agency, and several federal judges have questioned its ethicality.  When a judge said that SEC lawyers did not have ‘faithful allegiance to the law’ while working on the XRP case, a case which sparked a lot of controversy regarding the credibility of the commission.

Court Rulings Highlight SEC Misconduct

The legal struggle of XRP involved a pro-bono attorney at law, John Deaton, who prevailed in the case regarding the legal status of XRP. As mentioned earlier, the judge concluded that XRP itself is not a security, which resonated in the world of cryptocurrencies. 

During the discovery, Deaton moved the judge with the names of 75,000 XRP holders, inclusive of 627 from Massachusetts, to avail the data that the latter used in coming to a conclusion. It was considered as a major blow to the SEC’s campaign to increase crackdown on cryptocurrencies.

After the XRP ruling, a Federal Appellate Court said that the SEC’s proceeding was arbitrary and capricious, which is a very high legal standard to cross. This ruling joined the increasing number of decisions castigating the SEC for its inconsistent and arguably reckless enforcement regime.

Debt Box Case Brings Further Allegations

In another legal battle, the SEC faced sanctions for lying to the court during the Debt Box case. A federal judge sanctioned the agency for what was described as intentional misrepresentation and other forms of misconduct. This sanction further questions the agency’s integrity in handling sensitive legal matters, especially in its attempts to expand its regulatory reach.

The combination of these cases has sparked frustration among various sectors, including legislators who oversee the SEC. Yet, as some observers have pointed out, there has been a lack of strong public reaction from members of Congress, particularly those sitting on the Senate Banking Committee. 

This silence has raised eyebrows, especially in light of statements made by Senator Elizabeth Warren, who suggested that she did not want to place SEC Chair Gary Gensler “in a tough spot.”