SEC in Trouble? Judge Forces Lawyers To Quit $49M Crypto Case

YEREVAN (CoinChapter.com) — Two senior attorneys from the U.S. Securities and Exchange Commission (SEC), Michael Welsh and Joseph Watkins, have resigned following a federal judge’s criticism of their management of an SEC crypto case against the cryptocurrency firm Debt Box.

Notably, Judge Robert Shelby accused the SEC of “gross abuse of power,” particularly due to the lead attorneys’ role in the matter. As a result of this criticism, Welsh and Watkins were threatened with termination. But instead, they chose to step down, highlighting the consequences of the regulatory missteps.

SEC Apologizes For Misconduct in Crypto Case — A LOL Moment

Judge Shelby identified that the SEC’s case against Debt Box was built on shaky grounds, with key arguments and evidence presented by Welsh and Watkins in the SEC crypto case being inadequate and misleading.

In one example, Welsh incorrectly informed the judge that DEBT Box, a company based in Draper, Utah, was closing bank accounts and moving assets overseas, claims the court later determined were false. This error was attributed to a miscommunication, for which Welsh subsequently apologized to the court.

In December, SEC enforcement chief Gurbir Grewal extended an apology to the court for the misconduct of his department in handling the SEC crypto case. He announced the appointment of new attorneys to the case and mandated additional training for the agency’s enforcement staff.

The judgment comes after the SEC charged DEBT Box and its executives with defrauding investors of at least $49 million in July 2023. Following the regulator’s request, Judge Shelby had ordered the freezing of the company’s assets and placed the firm into receivership.

Will SEC Learn From Its Horrible Mistakes?

The case’s implications extend beyond the courtroom. In February, five U.S. senators voiced their alarm to SEC Chairman Gary Gensler concerning the regulator’s aggressive stance in the Debt Box incident within the framework of SEC crypto cases. Their concern highlights the broader unease about how the SEC wields its power in the rapidly evolving cryptocurrency market.

Meanwhile, the senators’ intervention underscores the growing scrutiny of regulatory practices in financial oversight, especially concerning innovative and emergent tech sectors. As the SEC moves to dismiss its charges against Debt Box, the outcome of this SEC crypto case may well set a precedent for future regulatory engagements in the digital finance arena.

To find more stories on SEC’s courtroom disasters, click here.