SEC admits date errors in Debt Box & iX Global case
The SEC is facing sanctions in its securities fraud case against Debt Box and iX Global.
In a nutshell, the SEC’s attorneys got some dates wrong with respect to when the Debt Box defendants began transferring investor funds out of the US to the UAE.
This led to a false sense of urgency, which the court factored in when it granted the SEC a TRO early on in the case.
Upon being made aware of the date errors, the court dissolved the granted TRO in October. Last month it also ordered the SEC to explain why it shouldn’t be sanctioned.
On December 21st the SEC filed its response. The regulator acknowledges it got dates wrong but also argues sanctions aren’t warranted.
In acknowledging its error, the SEC wrote;
The Commission cannot let its zeal to stop ongoing fraud interfere with its duty to be accurate and candid.
The Commission and its attorneys fell short of that expectation here. Commission counsel made a representation during the July 28, 2023 hearing that, unbeknownst to him at the time, was inaccurate.
Commission attorneys failed to correct that statement when they learned of the inaccuracy.
Commission counsel also failed to make clear that certain representations were inferences from the facts known to them rather than directly supported factual assertions.
The Commission takes this Court’s concerns seriously and deeply regrets these errors.
In light of the errors, the SEC states it is
taking steps to ensure those errors are not repeated in this action or other proceedings.
“Senior attorneys” have also been brought in to supervise the Debt Box and iX Global case.
After this Court issued its Order to Show Cause, a new team of attorneys, primarily from the Commission’s Office of the General Counsel, was assigned to undertake a thorough inquiry into the Court’s questions, review the events that gave rise to the Court’s concerns, and prepare the response to the Order to Show Cause
The Division of Enforcement will also conduct mandatory training for all Division staff involved in investigations and litigation about the duty of accuracy and candor and the duty to correct any inaccuracies as soon as they come to light.
Arguing against sanctions, the SEC goes on to claim
the circumstances here fall short of the misconduct Rule 11 was intended to address, and Commission staff have not engaged in any bad faith conduct that could support sanctions under the Court’s inherent authority.
The Commission respectfully submits that its counsel and staff did not intend to mislead the Court. Nor did the Commission make the statements and filings at issue for an improper purpose, such as harassing Defendants.
Rather, the Commission’s representatives failed to accurately characterize the bases for their factual assertions, failed to identify inferences as such and to explain the bases for those inferences, and failed to identify inaccuracies in those assertions once discovered.
Sanctions are unwarranted in these circumstances.
Even if the Court were to find bad faith and impose sanctions pursuant to its inherent authority, sovereign immunity would bar monetary sanctions against the Commission.
A decision on imposing sanctions against the SEC now rests with the court. I’ll leave an update below when we get a decision on that.
In the meantime, regardless of whether sanctions are ordered or not, the SEC’s case against Debt Box and iX Global will continue.
One new tidbit we got out of the SEC’s filing is specific dollar amount and dates investor funds were transferred out of the US to the UAE.
By December 2022, approximately $1.35 million of investor funds from the United States had been transferred into the foreign bank account of IX Ventures FZCO, an entity headquartered in the United Arab Emirates and allegedly controlled by Defendants Jason and Jacob Anderson.
Certain Defendants were depleting assets in their U.S. bank accounts beginning as early as spring of 2021. For instance, as of May 30, 2023, the balance of accounts associated with DEBT Box had decreased by over $33 million, leaving an ending balance of approximately $367,000.
And as of May 30, 2023, the balance of accounts associated with iX Global, a multi-level marketing company allegedly controlled by Defendant Martinez that partnered with DEBT Box to market DEBT Box’s crypto asset securities, decreased by over $49 million, leaving an ending balance of approximately $763,000.
On June 30, 2023, three of iX Global’s Bank of America accounts were closed.
These aren’t the actions of legitimate US-based MLM companies. This is money laundering of ill-gotten gains, derived through securities fraud to the tune of over $110 million.
Sanctions or no sanctions, based on the evidence it’s my opinion that the SEC will prevail at trial.