Several Republican senators have criticized the SEC’s recent mishandling of the DEBT Box case as “unethical” and raised questions about the watchdog’s regulatory approach under the leadership of chair Gary Gensler.
The five senators said in a letter dated Feb. 7 that the SEC’s blunders in the case were “unacceptable” and raised several concerns about its operations.
SEC’s mishandling of DEBT Box
The SEC accused DEBT Box of operating a crypto asset fraud scheme in August 2023. The regulator subsequently obtained a temporary asset freeze, restraining order, and other emergency relief against the firm.
Later court proceedings determined that those requests were granted based on false information from SEC counsel. The SEC admitted to inaccuracies in December and moved to drop the case entirely in late January.
The letter stated:
“We are greatly concerned by the Commission’s conduct in [the DEBT Box] case. It is unconscionable that any federal agency — especially one regularly involved in highly consequential legal procedures and one that, under your leadership, has often pursued its regulatory mission through enforcement actions rather than rulemakings — could operate in such an unethical and unprofessional manner.”
Senators acknowledged that the SEC’s errors were likely due to “negligence rather than malevolence” but said that “even this charitable explanation is unacceptable.”
The senators questioned how SEC counsel could be unfamiliar with the facts of a case and suggested that other enforcement cases could require scrutiny. They expressed concerns that other SEC cases may be based on “dubious evidence, obfuscations, or outright misrepresentations.”
Senators additionally called the SEC’s previous promise of mandatory staff retraining disproportionate to the severity of the incident. They also indirectly alluded to the SEC’s intention of reassigning senior staff to the DEBT Box case, dismissing this as a “pledge to reshuffle personnel.”
Senators opposed to SEC
The senators did not ask the SEC to perform any specific actions, nor did they request answers to any particular questions.
Instead, the letter appears to be just one part of those senators’ broader opposition to the SEC’s treatment of cryptocurrency. The letter is signed by five Republican senators known for their crypto-friendly positions: Cynthia Lummis, Thom Tillis, Bill Hagerty, Katie Boyd Britt, and J.D. Vance.
Earlier in February, Lummis led an effort to overturn the SEC’s Staff Accounting Bulletin 121, a rule that could restrict custody practices around cryptocurrency. Lummis is also notable for a bipartisan bill that would, in part, set clear crypto regulatory roles for the SEC and CFTC. However, that bill has not developed significantly since it was reintroduced in mid-2023.
Meanwhile, Vance and Tillis recently wrote a letter to the SEC concerning a breach of the agency’s X account before approving spot Bitcoin ETF approvals in January. The three other senators have also expressed concerns over that breach in separate statements.