Two Securities and Exchange Commission attorneys have resigned after a federal judge sanctioned the regulator for “gross abuse of power” in a case against crypto platform DEBT Box.
Michael Welsh and Joseph Watkins resigned this month after an SEC official informed them they would lose their jobs if they didn’t leave, people familiar with the matter told Bloomberg. A court filing confirms Welsh’s departure.
Welsh and Watkins were the lead attorneys on the SEC’s case against DEBT Box. The regulator accused DEBT Box in July of defrauding investors of nearly $50 million and successfully petitioned Judge Robert Shelby of the District of Utah to freeze DEBT Box’s assets.
Shelby later determined, however, that the SEC’s case was rife with false statements and mischaracterizations of the actions of DEBT Box and its executives.
“[E]ach purportedly factual pillar the Commission constructed to make the required showing of irreparable harm crumbled under scrutiny,” Shelby wrote in March of the SEC’s case against DEBT Box.
“It was not just a single imprecise statement or inadvertent misstatement. Each piece of support the Commission offered in seeking the [temporary restraining order]—and then later reiterated in defending the TRO—proved to be some combination of false, mischaracterized, and misleading,” he wrote.
In December, SEC Director of Enforcement Gurbir Grewal acknowledged the SEC’s mistakes in its case against DEBT Box.
“It is my expectation that all attorneys in the Division accurately present to the courts the evidence in a particular case and the applicable law, at all times avoiding either misrepresentations or misleading representations to tribunals,” Grewal wrote. “It is also my expectation that if a Division attorney makes a mistake, it is quickly and appropriately addressed and corrected.”
“I understand that the Division fell short of these standards in this case, and I apologize for that shortfall,” he wrote.
In March, Shelby sanctioned the SEC and ordered the agency to pay DEBT Box’s attorneys’ fees and legal costs.
Neither Welsh nor Watkins responded to a request for comment by Bloomberg. An SEC spokesperson told Banking Dive the agency doesn’t comment on personnel issues. A spokesperson for DEBT Box did not return a request for comment.
Following the sanctions in March, however, DEBT Box posted on social media site X that the case “highlights the need for regulatory reform & upholds the importance of integrity in legal proceedings. The court's decision to order the SEC to cover D.E.B.T. Box's legal expenses marks a critical stance on transparency and ethical conduct within regulatory bodies. A call for reform echoes through the industry, demanding higher standards of accountability.”
