Multiple SEC Lawyers Resign Following Sanctions From DEBT Box Case

Multiple SEC lawyers are resigning after a federal judge sanctioned the agency for false statements & abuse of power in a crypto case. Lawyers Michael Welsh and Joseph Watkins represented the SEC in their case against Digital Licensing Inc., AKA DEBT Box. They stepped down this month after an SEC official told them that they would be terminated if they stayed, according to sources familiar with the matter.

Federal district court judge Robert Shelby ruled that the regulator’s lawsuit against DEBT Box was marred by false statements and misrepresentations. Furthermore, he and the court ruled that the SEC was abusive of their power throughout their investigation into DEBT Box. Judge Shelby decided to sanction the agency for abuse of power in March. The SEC’s head of enforcement has since apologized for their actions.

In July, the SEC accused DEBT Box and its executives of defrauding investors of at least $49 million. While Judge Shelby immediately sided with the SEC and forced the company to freeze its assets, he eventually found that the regulator made “materially false and misleading representations.” Thus, he changed his mind and incited the sanctions. However, the Utah crypto firm was put into receivership.

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Now, the SEC’s lawyers are stepping down, submitting defeat after their arguments against DEBT Box were deemed false. For example, Welsh told the judge that Utah-based DEBT Box was closing bank accounts and transferring assets overseas. The court, however, found that this was false. An SEC investigator later said that a miscommunication led to the error, and Welsh then apologized to the court. Since stepping down, the two lawyers have yet to comment publicly.