In order to stop a fraudulent crypto asset scheme involving 18 defendants, the U.S. Securities and Exchange Commission successfully obtained emergency relief against a company based in Utah. The ongoing scheme, which started in March 2021, centers around the sale of unregistered securities termed "node licenses," according to an Aug. 3 news release.
“We allege that DEBT Box and its principals lied to investors about virtually every material aspect of their unregistered offering of securities, including by falsely stating that they were engaged in crypto asset mining,” Tracy S. Combs, director of the SEC Salt Lake Regional Office, said in the release. “We filed this emergency action to protect the victims of the defendants’ unlawful actions and stop further harm.”
The SEC has taken legal action against Digital Licensing Inc., operating as “DEBT Box,” and its principals, Jason Anderson, Jacob Anderson, Schad Brannon and Roydon Nelson, along with 13 other defendants, the release reported. The SEC obtained a temporary asset freeze and restraining order against them for their alleged involvement in a fraudulent scheme.
The scheme revolves around selling crypto asset securities to hundreds of U.S. investors, resulting in around $50 million and unspecified amounts of Bitcoin and Ether, the release said. The SEC’s complaint, unsealed in the U.S. District Court for the District of Utah, accuses the defendants of promoting unregistered node licenses through misleading online videos, social media posts and investor events.
These node licenses were claimed to generate various crypto asset tokens through mining activity, with revenue-generating businesses supposedly driving the tokens’ value, according to the release. However, the SEC contends the node licenses were designed to hide the fact that DEBT Box created tokens instantly using blockchain code.
The complaint further alleges DEBT Box and its principals, along with other defendants, lied about the revenues of businesses supporting the token’s value, the release reported.
In total, 18 defendants, including DEBT Box and its principals, have been charged with engaging in unregistered securities offerings. Additional charges include violations of federal securities laws’ antifraud provisions and acting as unregistered brokers, the release said. The complaint seeks permanent injunctive relief, the return of alleged ill-gotten gains and civil penalties.
U.S. District Judge Robert J. Shelby imposed a temporary restraining order, asset freeze and other relief July 28, according to the release. Shelby also appointed Josias N. Dewey from Holland & Knight LLP as a temporary receiver over DEBT Box to manage assets for the benefit of investors. Investors impacted by the DEBT Box offering can find further information on the receiver’s website or contact the receiver directly.
The ongoing SEC investigation involves Joseph Watkins, Laurie Abbott and Mitchell Davidson from the Salt Lake Regional Office, and Karaz Zaki from SEC Headquarters, the release said. The litigation will be led by Casey Fronk and Michael Welsh under the supervision of Combs.
The SEC encourages investors to familiarize themselves with the risks associated with crypto asset securities and unregistered offerings through educational bulletins such as “Exercise Caution with Crypto Asset Securities” and “10 Red Flags That An Unregistered Offering May Be A Scam,” the release reported.
