Judge Denounces SEC for ‘Gross Abuse of Power’ in Digital Licensing Lawsuit
The Securities and Exchange Commission (SEC) has once again suffered a defeat in one of its numerous legal battles. The U.S. District Court for the District of Utah has issued sanctions against the SEC, bringing an end to the lawsuit involving Digital Licensing Inc. and other defendants. The court ruling sheds light on significant misconduct by the SEC during the proceedings, leading to a stern reprimand from the court.
The court’s decision unveiled a series of missteps by the SEC in its handling of the case against Digital Licensing Inc. and related parties. On March 18, 2024, the court rejected the SEC’s motion to dismiss the case without prejudice, citing the agency’s failure to comply with procedural requirements.
The legal dispute began on July 26, 2023, when the SEC filed a sealed complaint and an ex parte application for a temporary restraining order (TRO) against Digital Licensing Inc. and others. Initially, the SEC emerged victorious, with the court granting the TRO against the defendants, freezing their assets, and appointing a receiver for their liquidation.
However, when the defendants moved to dissolve the TRO, their grievances were heard in September 2023, due to the passing of the ex-parte decree. During the hearing, the court granted the defendants’ motions to dissolve the TRO, citing the SEC’s failure to demonstrate irreparable harm. Consequently, the court dissolved the TRO and determined that the receivership should not continue beyond a transition period.
The tables turned when the court imposed sanctions on the SEC, exercising its inherent authority to punish the agency’s bad faith conduct. Judge Robert T. J. Shelby’s order directed the SEC to cover the defendants’ attorneys’ fees, legal costs, and the expenses of the court-appointed receiver.
In response to the court’s sanctions, the SEC acknowledged the various missteps made by its attorneys but argued against the imposed penalties. The Commission vehemently claimed that there was no intention to mislead and that it enjoyed sovereign immunity.
However, the court disagreed, finding the SEC guilty of gross abuse of power, characterized by repeated misrepresentations and deliberate falsehoods. The court emphasized that its ruling sends a clear message that no entity, regardless of its stature, is above the law.
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