SEC Lawyers Resign Amidst Court Criticism Over Crypto Case

In a recent development, two attorneys, Michael Welsh and Joseph Watkins, parted ways with the U.S. Securities and Exchange Commission (SEC) following severe reprimands from a district court regarding the agency’s handling of a cryptocurrency case.

Welsh and Watkins, newcomers to the SEC, played active roles in prosecuting DEBT Box, a cryptocurrency platform. Their resignations followed warnings of potential termination.

The Fallout: SEC Lawyers’ Departure Amidst Judicial Rebuke

Their departure followed a scathing critique by Chief Judge Robert J. Shelby, who presided over the case in Salt Lake City, Utah. Judge Shelby accused the SEC of making false statements and misrepresentations in its lawsuit against Digital Licensing Inc., also known as DEBT Box.

In his filing on March 18, Judge Shelby lambasted the SEC’s presentation of evidence, stating it was devoid of substance and riddled with deliberate falsehoods. He specifically called out Welsh for being aware of inaccuracies during a temporary restraining order (TRO) hearing but failing to rectify them.

This rebuke by the court highlighted what Judge Shelby described as a “gross abuse of power” by the SEC, undermining the integrity of legal proceedings and the judicial process. Given the SEC’s recent approval of a three-week comment period for three proposed exchange-traded funds (ETF) applications for the Ethereum (ETH) spot market, the reprimand is understandable.

The SEC had previously secured emergency relief against DEBT Box in August 2023, freezing the company’s assets and restraining its principals, alleging involvement in a $50 million cryptocurrency fraud scheme.

Criticism of the SEC’s regulatory approach, particularly under Chair Gary Gensler, has been mounting within the cryptocurrency industry. The agency’s enforcement actions, often perceived as regulatory overreach, have sparked concerns about stifling innovation and impeding the competitiveness of the U.S. in the global digital asset market.

This episode underscores the ongoing tension between regulators and the crypto community, highlighting the challenges of regulating a rapidly evolving industry amidst growing scrutiny and legal battles.

Image Courtesy of Flickr

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