SEC attorneys resign after ‘gross abuse’ of power in crypto case – Report

Two US Securities and Exchange Commission (SEC) attorneys have reportedly resigned after the district court found the agency “grossly abusive” in sanctions and acting in “bad faith” in crypto litigation.

According to an April 22 Bloomberg report, Michael Welsh and Joseph Watkins, the attorneys who led the lawsuit against crypto platform DEBT Box, resigned earlier this month. According to sources familiar with the matter, the lawyers were warned that they would be fired if they stayed.

The attorneys were both new to the agency, according to their LinkedIn profiles. Welsh has served as a trial attorney at the SEC since December 2022, and Watkins has served as an enforcement attorney since January 2023.

The couple's resignation follows a ruling by Chief Judge Robert J. Shelby, the federal judge hearing the case in Salt Lake City, Utah. In March, Judge Shelby ruled against Digital Licensing Inc., known as DBT Box.

“The commission's conduct discussed above constitutes an abuse of power vested in Congress and undermines the integrity of these proceedings and the judicial process,” Judge Shelby wrote in a March 18 filing.

In August 2023, the SEC obtained emergency relief to stop the Utah-based company, temporarily freezing its assets, and obtaining a restraining order against the principals of DEBT Box for a $50-million crypto fraud scheme.

Judge Shelby went on to say that the evidence presented was “without foundation” but presented “in a deliberately false and misleading manner”.

“Welsh knew his statement from the TRO hearing was incorrect. Instead of correcting the wrongdoing, he and the commission tried to subtly explain the language and perpetuate the offense.

The crypto industry has been critical of the SEC's approach under Chairman Gary Gensler, particularly the agency's “enforced regulation” strategy. Some critics argue that this approach has increased regulatory uncertainty in the industry, stifling innovation and undermining US competitiveness in the digital asset space.

High-profile enforcement actions against crypto platforms include indictments against crypto exchanges Coinbase and Binance and the agency's upcoming action against decentralized finance platform Uniswap.

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