Regulatory Overreach: The SEC's Controversial Enforcement Actions, will Trump Stop the Madness?

By Maria Fernandez March 25, 2025

The U.S. Securities and Exchange Commission, the powerful agency entrusted with protecting investors and maintaining fair markets, has faced growing scrutiny over its enforcement tactics. Recent court decisions have exposed troubling patterns of overreach and misrepresentation in high-profile cases, raising questions about the regulator's approach to evidence and its willingness to deploy aggressive measures and be dishonest will little regard to devastating businesses and no punishment for rogue employees.

The DEBT Box Debacle: When Enforcement Becomes Overreach

In a stunning rebuke to the SEC, a federal judge in May 2024 ordered the agency to pay approximately $1.8 million in attorney and receivership fees related to its civil case against Digital Licensing, the firm doing business as DEBT Box. Judge Robert Shelby signed an order requiring the SEC to pay roughly $1 million for attorney fees and costs and $750,000 for receiver fees and costs, while simultaneously dismissing the case without prejudice.

The case began in July 2023 when the SEC sued DEBT Box, alleging the firm had perpetrated an illegal $50 million crypto scheme. The agency secured a temporary restraining order (TRO) that froze the company's assets, effectively shutting down its operations overnight.

What prompted the judge's extraordinary sanction was the discovery that the SEC had presented false and misleading evidence to obtain the emergency TRO. In a November 2023 order, Judge Shelby alleged that the SEC "deceived the court by incorrectly stating that the defendants had closed bank accounts and attempted to move funds overseas". These misrepresentations were crucial in securing the asset freeze that crippled the business.

"This is a significant win for us," DEBT Box stated after the ruling. "It means that the SEC cannot proceed with the case as it stands."

The DEBT Box case exemplifies the devastating consequences of regulatory overreach. Before the company could even respond to the allegations, a court-appointed receiver took control of its operations, customers panicked, and its reputation was severely damaged.

The judge ruled that the SEC "engaged in bad faith conduct" over the temporary restraining order to freeze DEBT Box's assets. This finding of bad faith represents one of the most serious judicial criticisms of the SEC's enforcement tactics in recent years. Even worse, the two lead SEC attorneys involved in the case knowingly deceived the judge and their bosses at the SEC took no action against them. In fact, it was not until after newspaper articles reported on the judge’s finding of outright lies by the SEC did the lawyers at the SEC then resign. Michael Welsh and Joseph Watkins, were not fired even though they were found to have filed false declarations under penalty of perjury, they simply resigned. Their bosses at the SEC not only did not fire them but they also did not even penalize them. This can be interpreted as a policy at the

SEC wherein if you are caught lying to a judge, you won’t be prosecuted but a regular citizen who does not work for the SEC would likely have faced a much different experience. The DEBT Box case is presently being handled by the Denver Regional Office of the SEC.

The Denver Regional Office of the SEC Has Another Mess Brewing

Earlier this month, attorney Chris Martin, a litigator with the Denver Regional Office of the SEC resigned. Mr. Martin was previously involved in a case where he stated in open court to Federal Judge Darrin Gayles that a company known as Broadstreet and its officers had raised nearly $800 million dollars but that only $62,500 had been used for investments from investor funds. The reality is that Mr. Martin’s own expert later testified that more than $700 million had actually been placed in investments, not the mere thousands of dollars that Martin claimed, and that investors had authorized all of the payment of management fees and expenses, thus verifying the spending of all monies was done exactly as represented to investors who had also specifically signed documents and agreed to that as well.

In addition, in that same court proceeding, attorney J. Lee Robinson of the SEC filed a sworn declaration in which he accused Broadstreet of commingling investor funds into a single bank account without investor authorization. However, attorney Robinson filed his declaration, which omitted to advise the court that every private placement signed by all of the investors specifically provided that investor cash funds would be comingled into a single account. Broadstreet is involved in nearly three hundred corporate entities, is one of the largest private equity infrastructure developers in the USA and the organization never told investors that it would maintain three hundred separate bank accounts. Actually, every single investor at Broadstreet, nearly three thousand of them, all signed documents approving of the company placing all cash in a single primary operating account. Yet, SEC attorney Robinson signed and submitted his declaration to the court and his declaration omitted to disclose to Judge Gayle that all investors had actually approved of this practice.

Broadstreet is lead by its CEO David Feingold who is no stranger to fighting the SEC. Mr. Feingold filed a lawsuit on behalf of himself, various Broadstreet officers and Broadstreet entities against the SEC in Texas Federal Court. The lawsuit focused on abusive conduct by the SEC including claims that the SEC retaliated against Feingold and Broadstreet after they complained to members of Congress about the Denver SEC. Feingold also wrote a scathing letter about improper conduct at the Denver SEC. The SEC claimed that the abuse that Mr. Feingold and Broadstreet suffered was due to the conduct of a “rogue” employee of the SEC but to this day, the SEC has never punished any employee for rogue conduct. This issue was covered at length by Law360 (Judge Presses SEC Over 'Rogue Employee' In PE Fund Fight - Law360) yet the SEC never removed any of the offending SEC employees from the investigation.

Further, Honorable Judge O’Connor of the Federal District Court of Texas ordered the SEC to turn over its investigatory file to Feingold and Broadstreet. However, on the date that file was due to be produced, the SEC went and filed for an emergency action for receivership and asset freeze against Feingold and Broadstreet in a completely different federal court in Florida, far away from Judge O’Connor. This was an apparent attempt to avoid having to comply with Judge O’Connor’s order against the SEC. Besides filing a brand new action in a Florida Federal Court and thereby apparently avoiding Texas Judge O’Connor, the SEC Denver Regional office, on the date of the Florida Federal Court hearing for emergency relief took even further unique action. In the Florida case which Mr. Martin and Mr. Robinson made their statements,

the SEC in mid hearing announced that it was withdrawing its asset freeze, receivership and emergency action. Did Mr. Martin’s and Mr. Robinson’s apparently false statements make the SEC change course? Quite peculiar to demand a receiver and freezing assets and shutting down a business and then dropping everything. Neither Feingold nor Broadstreet will comment on the matter, the Court file indicates some form of resolution has occurred. What is known now, is just like in DEBT Box, the SEC chose to try to close down a business and in Broadstreet’s case, a business that is described as being responsible for thousands of jobs and billions of dollars of economic impact in the Carolinas.

Even further complicating matters, the SEC Denver Regional Office hired a supposed expert to support its case and then later found out in Court that the SEC expert’s own boss was in fact an investor in Broadstreet. It was further discovered that the boss was a certified public accountant and certified fraud examiner and had reviewed and approved of Broadstreet as a good investment. Thus, the SEC’s own expert that was challenging Broadstreet, was employed by a boss, who was a highly qualified, sophisticated and a supportive investor of Broadstreet. Quite the conundrum for the SEC.

The Denver Regional Office of the SEC has no comment on this case but in another strange turn of events, attorney Chris Martin of the SEC resigned after the court hearing, but no confirmation has yet been made as to whether J. Lee Robinson has resigned or been punished.

The Mark Cuban Victory: When People Have The Resources To Fight

The DEBT Box case and the Broadstreet case are not the first time the SEC has faced pushback over its enforcement approach. It seems when entrepreneurs have money, in the Broadstreet case Feingold is a well-known uber wealthy entrepreneur and in 2013 it was the likewise uber wealthy businessman Mark Cuban who took his resources and fought back. Eventually Cuban decisively defeated the agency after a jury deliberated for less than five hours before finding him not liable for insider trading allegations.

The SEC had charged Cuban in 2008, claiming he avoided $750,000 in losses by selling his entire 600,000 share position in Mamma.com based on material, non-public information about an impending private investment in public equity (PIPE) offering.

The case hinged on an unrecorded, eight-minute phone call from June 2004 between Cuban and former Mamma.com CEO Guy Faure. The SEC alleged that after learning confidentially about the planned PIPE offering, Cuban said, "Now I'm screwed. I can't sell," but then proceeded to sell his shares anyway.

Cuban testified that he couldn't remember details from the conversation but maintained he was never told to keep the information secret. With no recording of the call, it became one man's word against another's—a remarkably thin evidential basis for such a high-profile prosecution. Nonetheless, the SEC, having known that even when losing a case or having thin evidence, it simply never faces consequences, chose to pursue Cuban. Nonetheless, Cuban won and is rumored to have spent more than $20 million in legal fees in order to prevail.

After his victory, Cuban gave an impassioned speech calling the SEC "big bullies" for pursuing the case. Although Cuban spent more on his legal defense than he would have paid in penalties, he fought on principle to prove the SEC should never have targeted him.

The verdict raised serious questions about the SEC's case selection and evidentiary standards, particularly when targeting high-profile figures. One common theme in all of these cases is that the SEC is simply never punished, they simply pursue cases without regard to the consequences simply because they seem to not suffer their own consequences when they file false declarations, omit to include important facts a judge should know (as appears in the DEBT Box and Broadstreet case) or where they have thin evidence (Cuban case).

A Question of Accountability – Will Trump Finally Make The Promised Change

The above examples show a troubling history at the SEC. President Trump ran on a promise of cutting government fraud, waste and abuse. Clearly the above stories show examples of abuse. To date, President Trump has only been in office for a few months, however, his latest selection for Chairman of the SEC is a former long time member of the SEC and so the question remains will the abuse be stopped and will their finally be change?