SEC Ordered to Pay $1.8M in Attorney Fees Arising from Ill-Gotten Temporary Restraining Order Against Morrison Cohen Client DEBT Box

On May 28, 2024, the U.S. District Court for the District of Utah ordered the Securities and Exchange Commission to pay $1.8 million in attorney and receivership fees related to the regulator’s civil case against Morrison Cohen clients DEBT Box and its principals. In addition, Chief U.S. District Judge Robert Shelby dismissed the case without prejudice on the condition that any renewed action be filed directly with him.

In a July 2023 lawsuit against DEBT Box, the SEC alleged that the company was involved in an ongoing illegal $50 million crypto scheme. But Morrison Cohen successfully established that the SEC had made materially false and misleading statements to the court in its efforts to secure a temporary restraining order against DEBT Box.

This week, Chief U.S. District Judge Robert Shelby upheld most fee requests filed by over a dozen defendants accused by the SEC of fraud and registration violations in connection with their involvement in DEBT Box. Morrison Cohen was awarded its full request of $565,000.

“Defendants have already been the victim of this misconduct and they should not be 'revictimized' by being required to establish the prevailing local rates for this type of litigation,” Judge Shelby said in the order. “Moreover, at the outset of this litigation, defendants selected the counsel of their choice at what they anticipated to be their own expense.”

Judge Shelby’s order recognized that Morrison Cohen played a “lead role” in accomplishing this result: “Given the complexity of the case and the urgency of issues pertaining to the TRO and Receiver, it is not unreasonable that partners with decades of experience in securities litigation and regulatory enforcement actions shouldered a large share of the burden. Furthermore, counsel for the DEBT Box Defendants have played a lead role in this case and were instrumental in bringing to light the problematic issues surrounding the TRO.”

In a statement to Law360, Partner Richard Hong said that the team is pleased that the court dismissed the lawsuit and awarded its requested attorneys' fees. “We hope that the SEC will not bring another action, but if it does, we will be ready,” he said.

Richard Hong, Jason P. Gottlieb, David E. Ross, Jeffrey D. Brooks and Alexander R. Yarm represent DEBT Box, along with Matthew Lewis and Taylor Smith of Kunzler Bean & Adamson PC.

This significant win was covered widely in the press, including in Bloomberg Law, Cointelegraph and Law360. The case is SEC v. Digital Licensing Inc. d/b/a DEBT Box et al.