Two lawyers working for the United States Securities and Exchange Commission (SEC) have reportedly resigned following a district court’s decision to sanction the agency for its “gross abuse” of power and acting in “bad faith” in a cryptocurrency case.
According to a report by Bloomberg on April 22, Michael Welsh and Joseph Watkins, who were the lead attorneys in the case against crypto platform DEBT Box, resigned earlier this month. Sources familiar with the matter have revealed that the lawyers were warned they would be fired if they chose to stay.
Both lawyers were relatively new to the agency, as indicated by their LinkedIn profiles. Welsh had been serving as a trial attorney at the SEC since December 2022, while Watkins had been working as an attorney at the Division of Enforcement since January 2023.
The resignation of the lawyers comes in the wake of a court decision by Chief Judge Robert J. Shelby, the federal judge presiding over the case in Salt Lake City, Utah. In March, Judge Shelby imposed sanctions on the SEC for making false statements and misrepresentations in its case against Digital Licensing Inc., also known as DEBT Box.
In a filing dated March 18, Judge Shelby stated, “The Commission’s aforementioned conduct constitutes a gross abuse of the power entrusted to it by Congress and substantially undermines the integrity of these proceedings and the judicial process.”
In August 2023, the SEC obtained emergency relief to halt the operations of the Utah-based company, DEBT Box, by temporarily freezing its assets and obtaining restraining orders against the company’s principals, citing their involvement in a $50-million cryptocurrency fraud scheme.
Judge Shelby further noted that the evidence presented by the SEC “lacked any basis” and was intentionally presented in “deliberately false and misleading ways.”
The cryptocurrency industry has been highly critical of the SEC’s approach under Chair Gary Gensler, particularly regarding the agency’s strategy of “regulation by enforcement.” Critics argue that this approach has created regulatory uncertainty within the industry, stifling innovation and undermining the competitiveness of the United States in the digital asset space.
Notable enforcement actions taken by the SEC against cryptocurrency platforms include lawsuits against crypto exchanges Coinbase and Binance, as well as the agency’s upcoming action against the decentralized finance platform Uniswap.
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