Several SEC lawyers have quit their posts after a federal judge sanctioned the agency for misrepresentation and abuse of power in a crypto-currency case. Attorneys Michael Welsh and Joseph Watkins, who represented the SEC in the case against Digital Licensing Inc, aka DEBT Box, stepped down this month. An SEC official had told them they would be fired if they stayed, according to sources familiar with the case.
Federal District Court Judge Robert Shelby found that the regulator's case against DEBT Box involved misrepresentations and misinformation. In addition, the judge and the court found that the SEC had abused its authority throughout its investigation of DEBT Box. In March, Judge Shelby decided to sanction the agency for abuse of power.
In July 2023, the SEC accused DEBT Box and its executives of defrauding investors of at least $49 million. Judge Shelby initially supported the SEC in forcing the company to freeze its assets. However, he later ruled that the regulator had made "materially false and misleading statements". It therefore revised its position and encouraged sanctions. The Utah crypto-currency company was placed in receivership.
Now that the SEC lawyers are stepping down, they are accepting defeat after their arguments against DEBT Box were found to be false. For example, Welsh had informed the judge that Utah-based DEBT Box was closing bank accounts and moving assets offshore, a claim the court found to be false. An SEC investigator attributed the error to a miscommunication and Mr Welsh later apologised to the court. Since their resignation, the two lawyers have not yet made any public statements.
