The SEC’s ‘gross abuse of power’ in crypto case is a new low for Chairman Gensler

Here's something you don't see every day: a federal judge choosing to punish lawyers for lying to the court. Rarer still—so rare I can't recall another example—is a judge choosing to impose such a punishment, in the form of sanctions, on lawyers for a federal agency. Ordinarily, this would be shocking. But this isn't any federal agency, it's Gary Gensler's Securities and Exchange Commission, so perhaps we shouldn't even be surprised.

The context here is a remarkable 80-page ruling issued on Monday by U.S. District Judge Robert Shelby in a case involving the SEC and a little-known Utah crypto company. The case was about the company's alleged sale of unregistered securities, but that is not what was at issue in Shelby's thunderbolt of a ruling. What the judge chose to address instead was the decision by the SEC's lawyers to lie repeatedly in order to obtain what's called an ex parte temporary restraining order.

In plain English, what that means is getting an emergency court order—in this case for the SEC to freeze the company's assets—but, and this is the key part, without giving the firm a chance to respond. Courts are very reluctant to grant ex parte orders because they involve issuing a ruling based only on evidence from one side, which goes against common law principles of fairness. A judge will, however, grant these orders if there is an urgent reason to do so—for instance, if there is a strong chance the defendant will destroy evidence or flee the country if made aware of the court proceeding.

In the case of the Utah crypto company, that's why the SEC's lawyers needed the ex parte order. Or at least that's what they told the judge. In reality, as Shelby later learned, the defendants didn't even know the SEC was conducting an investigation. Then, after being caught in their lie, the SEC lawyers lied some more to try and paper over their initial fabrication. In response, Shelby had the judicial version of a freak-out over the deception.

In his ruling, the judge shredded the SEC's claims that the lawyers' behavior was not that bad and that, in any case, the agency enjoyed some kind of sovereign immunity from being sanctioned by his court. Instead, Shelby took the almost-unheard-of step of ordering the agency to pay the defendant's legal fees on the grounds that the agency had repeatedly acted in bad faith and engaged in a "gross abuse of power." This is very strong language for a court—the judicial equivalent of breaking a chair over someone's head in a bar fight. And lest you think Shelby is some far-right, anti-government zealot, note that he was appointed by President Barack Obama.

This is not the sort of thing that should happen at a federal agency, but, once again, this is Gary Gensler's SEC. Time and again, in his obsession to stamp out the crypto industry, Gensler has adopted an ends-justify-the-means mentality that—no matter what you think of crypto—has no place in an administrative agency whose leaders are supposed to come up with policies that are fair and respect the rule of law. Sure, politics always plays a role, but Gensler—who is no lawyer, and it shows—has pursued the course set for him by Sen. Elizabeth Warren (D-Mass.) so aggressively that he appears to have forgotten how an agency is supposed to behave in the first place. The embarrassing rebuke from the federal judge is hardly the first example of this, but it may just be the most egregious.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

This story was originally featured on Fortune.com