On Thursday, the Securities and Exchange Commission (SEC) launched an emergency legal intervention against Digital Licensing Inc., conducting business as “DEBT Box,” alongside its four principals and 13 additional defendants. This move is in response to the discovery of an alleged fraudulent scheme that sold unregistered crypto asset securities named “node licenses” to hundreds of U.S. investors, amounting to roughly $50 million.
According to the SEC’s unsealed complaint filed in the U.S. District Court for the District of Utah, the ongoing scheme began in March 2021. The defendants made claims through hundreds of online videos and social media posts that these node licenses would generate various crypto tokens through mining activities. They also promised that revenue-generating businesses across multiple sectors would increase the value of the tokens mined by DEBT Box, resulting in significant profits for investors. However, the SEC alleges that the node licenses were a mere façade, masking the fact that DEBT Box instantly created the total supply of each token through coding on a blockchain.
The SEC’s intervention includes a temporary asset freeze, restraining order, and other emergency relief measures. The Director of the SEC’s Salt Lake Regional Office, Tracy S. Combs, stated, “We filed this emergency action to protect the victims of the defendants’ unlawful actions and stop further harm.”
Charges, allegations, and legal proceedings against DEBT Box and co-defendants
The complaint targets a total of 18 defendants, accusing them of participating in unregistered securities offerings. Furthermore, DEBT Box and specific individuals within the company are charged with violating the anti-fraud provisions of the federal securities laws. Some of the individuals were also charged with acting as unregistered brokers.
The defendants are also accused of deceiving investors about the revenues of the businesses, supposedly driving the value of the tokens. The SEC is seeking permanent injunctive relief, the return of alleged ill-gotten gains, and civil penalties.
U.S. District Judge Robert J. Shelby entered an order on July 28, 2023, implementing the temporary restraining order, asset freeze, and additional relief measures. A temporary receiver has been appointed over DEBT Box to marshal assets for the benefit of investors. Affected investors are encouraged to visit the receiver’s website or call the provided contact number.
The SEC’s continuing investigation is handled by members of the Salt Lake Regional Office and SEC Headquarters. Additionally, the litigation will be managed by attorneys Casey Fronk and Michael Welsh, under the supervision of Ms. Combs.
On July 31, the SEC charged an individual, Richard Heart, with the misappropriation of investor funds through unregistered securities. Heart, using the entities Hex, PulseChain, and PulseX, allegedly raised $1 billion by promoting Hex tokens as a high-yield investment, promising up to 38% returns. The SEC claims that Heart did not register these securities and used $12 million of the investment for personal luxuries, including a world-renowned black diamond.