Original post here: https://x.com/NuclearHerbs/status/1769859041239724400
Bonus #PulseChainLawSchool class on how to read an order, the likes of which you will probably never see again. It can’t wait until Friday, because it’s so deliciously good.
If you just heard a giant slapping sound, it was the Judge in the Debt Box case spanking the SEC with about as much force as he had available to him. It’s an 80 (EIGHTY!!!) page beatdown of the SEC, and I’m enjoying every word of it, because they deserve every word of it.
No tl;dr here. But you can skip to the last paragraph if you want to miss out on the good stuff.
Here’s what was said, and what it means:
However, the Commission recognizes “staff did not have direct evidence of recent depletion of funds or recent overseas transfers, and counsel should have identified his statement as an inference rather than a factual representation with direct support.”
– This is lawyer-speak for “Judge, we told you we had evidence, but we really didn’t. We just kinda made a guess as to what happened, but you wouldn’t have given us the order we asked for if you knew that.”
Specifically concerning the YouTube video, the Commission notes it should have identified its assertions about Defendant Anderson’s remarks were the “Commission’s interpretation of those remarks” and it should have provided additional context concerning the remarks.
– This is lawyer-speak for “Judge, we realize that’s not what he said, but it’s what we think he meant, but if we told you that it was just our guess, you wouldn’t have given us the order we asked for.”
The Commission acknowledges it “did not have direct evidence that Defendants had taken action to block Commission investigative staff from viewing Defendants’ social media sites. Rather, Commission staff drew that inference based on certain events and circumstances.
– I think you know where this is going by now. The SEC wouldn’t have gotten the order if they were honest with the judge, and they apparently really, really, really wanted the order.
The Commission acknowledges “staff did not have direct evidence that Defendants had taken action to block Commission staff from viewing their social media pages.” Again, “[t]he Commission regrets not identifying that statement as an inference rather than a factual representation, and not making the bases for that inference clear to the court.”
– Samesies.
Regardless, “[t]he Commission recognizes that this statement was inaccurate, and the Commission regrets not notifying the Court about the error when its counsel and staff became aware of the inaccuracy.”
– This is getting boring and repetitive at this point.
The Commission next addresses the court’s second question on this issue concerning when counsel became aware the statement about account closures was incorrect. Abbott recognized Welsh’s statement—that “in the last 48 hours Defendants have closed additional bank accounts”—“did not accurately reflect what she had said or intended to convey to Welsh . . . as soon as Welsh made the statement about accounts being closed in the last two days.” She did not correct Welsh at the hearing because “she had little experience attending court proceedings and was concerned about interrupting the hearing.”
– Senior SEC attorney knew junior SEC attorney was lying to the Judge and just sat there smiling and nodding.
Concluding this portion of its response, the Commission acknowledges it “should have notified the Court when staff learned that Welsh’s statement at the TRO hearing was inaccurate in multiple respects” and it “sincerely regrets the error.”
– “Sorry about lying to you, Judge. My bad. Totally won’t happen again, so let’s just forget about it, k?”
The Commission concludes it “should have expressly acknowledged the error in Welsh’s statement at the ex parte hearing, clarified the record, and explained why the corrected facts nonetheless supported a finding of irreparable harm.” It again “apologizes for not doing so.”
– “No, really, Judge. We’re like super sorry and stuff. No need to make a big deal about it.”
After providing its responses to the court’s questions—identifying “errors and lapses in judgment that it will take steps to remedy”—the Commission argues sanctions are not warranted.
– Judge: “LOL, bend over.”
The Commission further argues that, even if the court finds bad faith and imposes sanctions under its inherent power, “sovereign immunity would bar monetary sanctions against the Commission.”
– SEC: “Bro, we’re the government, you can’t make us pay up.”
The court authorized the Commission to file a Surreply, which it did on January 30, 2024. In it, the Commission recognizes “its attorneys should have been more forthcoming” but reiterated its position that “sanctions are not appropriate or necessary . . . .”
– SEC: “We’re giving you one last chance to let us off the hook here, Judge.”
The Commission acknowledges Welsh’s assertion at the TRO hearing was false at the time he made it and Commission staff—also licensed attorneys—participating in the hearing knew it.
– Judge: “Bailiff, grab me the biggest, strongest paddle you’ve got. I don’t want it to break in the middle of this spanking.”
Abbott’s explanation for not informing Welsh of his misrepresentation to the court—that she did not think it was material to the showing of irreparable harm—is deeply troubling. At the outset of the TRO hearing, the court expressed its view that the Commission had failed to argue the correct legal standards by failing to argue irreparable harm and the court was prepared to deny the Commission’s request for a TRO.
– Basically, the judge was initially inclined to deny the TRO, but changed his mind based on the SEC’s false statements.
The Rules and Abbott’s duty of candor to the court do not leave to her to decide whether a false statement must be corrected. Welsh made a false statement to the court that was integral to the Commission’s showing of irreparable harm in a hearing for an ex parte TRO. Abbott knew it was incorrect the moment Welsh said it. Her duty required her to correct it.
– Judge: “Which one of you wants to get their ass beat first?”
There is another troubling aspect to Abbott’s explanation for her failure to correct the false statement. According to the Commission, she did not think the statement was material because of “the other evidence the Commission had presented of an ongoing fraudulent offering.” This suggests a misunderstanding of the judicial process. It has not been determined whether Defendants engaged in a fraudulent offering. That is for a trier of fact to decide at the conclusion of the litigation. That the Commission files a complaint does not conclusively prove, nor serve as evidence of, fraud or anything else.
– Judge (stretching so he doesn’t pull a muscle whacking them): “*I* get to decide what’s important, not you clowns.”
Before a party has an opportunity to respond to the allegations against it, long before the truth of those allegations is determined, the court grants a TRO, freezes assets, and appoints a receiver to seize control of entire companies—all without notice to the affected party. Given the profoundly significant consequences of this relief, the court must trust counsel take their duties to the court seriously. Abbott’s explanations reflect a misapprehension that Commission attorneys are not only exempt from binding ethical obligations but also operate above the traditional adjudicative process.
– *SEC attorneys are now looking at each other like “please don’t make me go first”*
This was not merely an inaccuracy. Welsh did not have direct evidence to support his representation. This fact required, at minimum, that Welsh inform the court he was drawing an inference and make clear what facts he believed supported that inference. As presented, his representation was simply a false statement. Worse still, Welsh’s misconduct is then compounded by his and the Commission’s subsequent mischaracterization of his statement in the Commission’s Opposition to the DEBT Box Defendants’ Motion to Dissolve.
– Judge: “Not only are you liars, but you wouldn’t even stop lying after I gave you a chance.”
While these layers of false statements compound how troubling the Commission’s misconduct is, they also demonstrate subjective bad faith. By claiming the statement in the Opposition was consistent with the statement from the TRO hearing, but then offering a new unrelated representation, Welsh and the Commission demonstrate they knew they had misled the court and were attempting to obfuscate. As the Commission was preparing its Opposition to the Motions to Dissolve, Welsh knew his statement from the TRO hearing was incorrect. Rather than correcting the misstatement, he and the Commission attempted to subtly shift the language to gloss over and perpetuate the misconduct.
– Judge: “Looks like Welsh is up first. Bailiff, hand me the paddle.”
(I’m going to skip over the next 20 pages or so, just so this post doesn’t get even more out of control than it already is)
It is essential to keep the broader context in mind. The Commission came to the court seeking the extraordinary relief of an ex parte TRO together with a sweeping asset freeze and court-appointed receiver to assume control of Defendants’ companies. It expressly traded on its special standing as a federal agency—reminding the court it had been granted this relief several times in the past ten years—to demonstrate it could be trusted when asking for this tremendous exercise of judicial authority.
– Pretty sure this judge isn’t going to be inclined to give the SEC the benefit of the doubt ever again.
Each piece of support the Commission offered in seeking the TRO—and then later reiterated in defending the TRO—proved to be some combination of false, mischaracterized, and misleading. Further, the Commission not only repeated and affirmed its misrepresentations in the face of contrary evidence, it presented new falsehoods to the court in an effort to subtly shift from its previous misrepresentations without acknowledging its previous errors. The Commission’s conduct demonstrated it knew its representations were false and it was deliberately perpetuating those falsehoods—continuing to abuse the judicial process in defense of the ex parte TRO that should not have issued.
– In over 20 years, I have *NEVER* seen a judge write anything like this in my life. This is as bad as it can get without the judge using profanity.
The Commission asserts without explanation that, even if the court finds bad faith sanctions are warranted, “sovereign immunity would bar monetary sanctions against the Commission.” The court disagrees.
– Judge: “And while you’re down there bent over counsel table getting your ass whooped, get out your checkbook.”
The Commission’s argument on this issue raises an additional concern. Its position is clearly contradicted by binding Tenth Circuit precedent which the Commission does not acknowledge, much less attempt to distinguish.
– Judge: “Binding precedent? You guys just won’t stop, eh? We’ll see about that.”
The Commission’s above-discussed conduct constitutes a gross abuse of the power entrusted to it by Congress and substantially undermined the integrity of these proceedings and the judicial process.
– Judge: “If you thought the last 70 pages sucked, you’re really going to hate this part.”
As required and discussed in detail above, the court finds subjective bad faith by the Commission. The court determines by “clear evidence” there was both a “complete lack of color and an improper purpose on the part of the government.”
– BOOM.
Accordingly, the court imposes a sanction of attorneys’ fees and costs for all expenses arising from the TRO and appointment of the Receiver—to include payment of all the Receiver’s costs and fees.
– Judge: “But wait, there’s more!”
In its Motion, the Commission provides no legal authority or argument in support of its request and the Motion is opposed by Defendants. Thus, the Commission’s Motion fails to comply with the Local Rules.
– Judge: “You couldn’t even follow the simplest rules regarding a Motion to Dismiss, so I’m gonna deny it until at least one of you learns to read.”
For the reasons provided, the court concludes the Commission engaged in bad faith conduct in seeking, obtaining, and defending the ex parte TRO, asset freeze, and appointment of a receiver. The court imposes sanctions under its inherent authority for the Commission’s abuse of judicial process. The Commission is ORDERED to pay Defendants’ and Receiver’s attorneys’ fees and legal costs arising from the TRO and the Receiver. Defendants and Receiver are ORDERED to file within 30 days petitions for fees clearly setting forth their requests in accordance with the court’s guidance in this order.
– WHACK. WHACK. WHACK. WHACK. WHACK.
I can’t tell you how much I needed this today.
This is the biggest “L” I’ve ever seen handed out to a government agency, and I can only hope it burrows its way into the minds of other judges deciding SEC cases, and they begin to question whatever the SEC puts in front of them more closely.
