Two attorneys from the Securities and Exchange Commission (SEC) resigned following a federal judge’s severe criticism and sanctions against the Wall Street regulator for what was termed as “gross abuse” of power in a cryptocurrency case.
Michael Welsh and Joseph Watkins stepped down this month after being informed by an SEC official that they would face termination if they chose to remain, according to sources familiar with the situation. Welsh and Watkins served as lead attorneys on a case against Digital Licensing Inc., a crypto platform known as DEBT Box.
The lawsuit filed by the regulator against DEBT Box was marred by false statements, misrepresentations, and a lack of evidence, as noted by Robert Shelby, the federal district court judge in Salt Lake City presiding over the case. Shelby’s decision to sanction the SEC for abuse of power in March led to an apology from the SEC’s head of enforcement for the missteps.
Welsh and Watkins, based in the SEC’s Salt Lake City office, did not respond to requests for comment. The SEC declined to provide a comment, as did a representative of the union representing agency staff.
In July, the SEC accused DEBT Box and its executives of defrauding investors of at least $49 million. At the SEC’s request, Shelby froze the company’s assets and placed it into receivership.
However, the asset freeze was reversed after Shelby found that the SEC may have made “materially false and misleading representations.” The judge subsequently sanctioned the SEC for what he termed as “gross abuse of the power entrusted to it by Congress” and ordered the agency to pay some of DEBT Box’s attorney’s fees.
Shelby criticized arguments presented by Welsh, the SEC’s lead trial attorney, and evidence provided by Watkins and his team. Watkins served as the agency’s lead investigative attorney in the case.
In one instance, Welsh informed the judge that DEBT Box, based in Draper, Utah, was closing bank accounts and transferring assets overseas, which the court found to be untrue. Welsh later apologized to the court, attributing the error to a miscommunication.
In December, SEC enforcement chief Gurbir Grewal apologized to the court for his department’s conduct and announced the appointment of new attorneys to the case, along with mandated training for the agency’s enforcement staff.
A lawyer for DEBT Box declined to provide a comment. Last week, attorneys for DEBT Box and other parties filed motions requesting that the SEC pay more than $1.5 million in fees and other costs incurred in the case.
Earlier this month, the SEC moved to dismiss the case against DEBT Box without prejudice. Shelby has yet to rule on that motion.
Source: bnnbloomberg.ca
