Two Securities and Exchange Commission (SEC) attorneys, Michael Welsh and Joseph Watkins, on April 22, following sanctions from a federal judge and harsh criticism of the regulator's handling of crypto-related cases. I resigned.
Initially, the SEC's legal division, led by attorney Michael Welsh, had persuaded the court to freeze DEBT Box's assets, arguing that it would be relocated to Dubai, where it is outside the reach of U.S. regulations.
SEC prosecutor resigns amid controversy over DEBT box case
Two Securities and Exchange Commission lawyers have resigned after a federal judge sanctioned and harshly reprimanded the Wall Street regulator for “gross abuses” of power in a cryptocurrency case. https://t.co/4rI81TNFky
— Bloomberg Crypto (@crypto) April 22, 2024
according to Source familiar with the matter, Welsh and Watkins resigned after being told by SEC officials that they would face termination if they remained. The lawyers were leading the SEC's case against Digital Licensing Inc., a crypto platform known as DEBT Box.
The case against the DEBT box was marred by allegations of false statements, misrepresentations and insufficient evidence, said U.S. District Judge Robert Shelby in Salt Lake City, who is overseeing the case. In March, Mr. Shelby sanctioned the SEC for what he deemed a “gross abuse” of power, leading the agency's chief executive to apologize for the agency's failures.
The SEC had accused DEBT Box and its executives of defrauding investors. At least $50 million in July 2023, leading to the freezing of company assets and the appointment of a receiver. However, the asset freeze was overturned after Mr. Shelby found that the SEC had made potentially false and misleading statements. The judge's ruling ordered the SEC to pay a portion of DEBT Box's legal fees.
Mr Justice Shelby criticized Wales' arguments and the evidence presented by Mr Watkins and his team. One example highlighted in court concerned Wales' claims that DEBT Box was closing bank accounts and transferring assets overseas, which turned out to be false. The SEC attributed the mistake to a miscommunication, and Wales apologized in court.
The DEBT box incident took an unexpected turn. The defendants disputed the Securities and Exchange Commission's (SEC) claims, arguing that the regulator misrepresented the facts in order to obtain a temporary restraining order freezing the crypto platform's assets.
In response to the defendant's accusations, Judge Robert Shelby said: SEC asked to justify its actions. Meanwhile, the SEC's lawyers recognized error In their approach, they implored judges to refrain from imposing formal sanctions.
In January, the SEC dropped the case altogether in the face of mounting criticism.. Judge Shelby said: “Without prejudice,” but, Prevents the SEC from refiling at a later date.
SEC faces criticism from Judge Shelby in DEBT box case
In December, Judge Shelby issued a “show cause order.”“ A court order requiring the Securities and Exchange Commission (SEC) to justify or prove its actions. The SEC acknowledged the lack of transparency but argued that formal sanctions were unwarranted.
Judge Shelby specifically criticized SEC attorney Michael Welsh's role in misleading the court and attempting to conceal the truth.
“Mr. Wales knew that what he said at the TRO hearing was wrong.” “Rather than correct the misstatements, he and his committee subtly worded them to cover up and perpetuate the fraud.”
Following the court's scrutiny, SEC Enforcement Director Gurbir Grewal said: expressed It regretted the department's actions and announced measures to address the situation, including appointing a new lawyer and requiring training for executive staff. Subsequently, a complaint was filed with the SEC seeking reimbursement of attorney's fees and other costs incurred during the litigation, totaling more than $1.5 million.
