Two attorneys representing the United States Securities and Exchange Commission (SEC) have reportedly resigned following a district court’s ruling that the agency had engaged in “egregious misuse” of power and acted in “bad faith” in a cryptocurrency case.
According to a Bloomberg report on April 22, Michael Welsh and Joseph Watkins, who served as lead attorneys in the case against DEBT Box, a crypto platform, tendered their resignations earlier this month. Sources familiar with the matter have revealed that the lawyers were given a warning that they would be fired if they chose to remain.
Based on their LinkedIn profiles, it appears that both lawyers were relatively new to the SEC. Welsh joined as a trial attorney in December 2022, while Watkins began working as an attorney at the Division of Enforcement in January 2023.
The decision to resign by the attorneys came after Chief Judge Robert J. Shelby, who presided over the case in Salt Lake City, Utah, handed down a court ruling. In March, Judge Shelby reprimanded the SEC for making false statements and misrepresentations in its case against DEBT Box, also known as Digital Licensing Inc.
In his filing on March 18, Judge Shelby stated, “The conduct of the Commission as discussed above constitutes a grave abuse of the authority entrusted to it by Congress and significantly undermines the integrity of these proceedings and the judicial process.”
In August 2023, the SEC obtained emergency relief to halt operations at DEBT Box, a company based in Utah. This action involved temporarily freezing the company’s assets and obtaining restraining orders against DEBT Box’s principals, alleging their involvement in a $50 million cryptocurrency fraud scheme.
Judge Shelby further noted that the evidence presented by the SEC “lacked any foundation” but was deliberately put forward in “false and misleading ways.”
The cryptocurrency industry has been vocal in its criticism of the SEC’s tactics under the leadership of Chair Gary Gensler, particularly regarding the agency’s strategy of “regulation by enforcement.” Critics argue that this approach has created regulatory uncertainty in the industry, stifling innovation and undermining the United States’ competitiveness in the digital asset space.
Notable enforcement actions against cryptocurrency platforms include the lawsuits against Coinbase and Binance, two prominent crypto exchanges, as well as the forthcoming action against the decentralized finance platform Uniswap by the SEC.
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