Two attorneys from 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 Bloomberg report on April 22, Michael Welsh and Joseph Watkins, who were lead attorneys in the case against cryptocurrency platform DEBT Box, resigned earlier this month after being warned that they would be terminated if they continued in their roles.
Both lawyers were relatively new to the SEC, as indicated by their LinkedIn profiles. Welsh had been a trial attorney at the SEC since December 2022, while Watkins had been an attorney at the Division of Enforcement since January 2023.
The resignations of Welsh and Watkins followed a court ruling by Chief Judge Robert J. Shelby, who presided over the case in Salt Lake City, Utah. In March, Judge Shelby sanctioned the SEC for making false statements and misrepresentations in its case against Digital Licensing Inc., also known as DEBT Box. In a filing on March 18, Judge Shelby stated that the SEC’s actions constituted a severe abuse of power and significantly undermined the integrity of the judicial process.
In August 2023, the SEC obtained emergency relief to halt DEBT Box, a company based in Utah, by temporarily freezing its assets and obtaining restraining orders against its principals. The SEC claimed that DEBT Box was involved in a $50 million cryptocurrency fraud scheme. However, Judge Shelby noted that the evidence presented in the case had no basis and was deliberately false and misleading.
The SEC’s approach under Chair Gary Gensler has faced criticism from the cryptocurrency industry, particularly regarding its strategy of “regulation by enforcement.” Critics argue that this approach has created regulatory uncertainty, stifled innovation, and harmed U.S. competitiveness in the digital asset space. The SEC’s enforcement actions against prominent cryptocurrency platforms include lawsuits against Coinbase and Binance, as well as an upcoming action against the decentralized finance platform Uniswap.
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