Two SEC Lawyers Resign Following Debt Box Sanctions Fiasco: Bloomberg

Two lawyers for the U.S. Securities and Exchange Commission (SEC) were forced to resign after a federal judge sanctioned the agency last month for committing a “gross abuse of power” while attempting to secure a temporary restraining order against Utah-based crypto company Debt Box, according to a Monday report from Bloomberg.

Michael Welsh, a former lead attorney on the Debt Box case, and Joseph Watkins, an investigative attorney whose declaration served as the foundation for the SEC’s case against Debt Box, were reportedly forced to step down or else be terminated, according to the report, which cited people familiar with the situation.

A spokesperson for the SEC declined to comment, but an April 15 court filing declared that Welsh “is no longer employed by the Securities and Exchange Commission.” Watkins’ LinkedIn page says he is still employed by the agency.

Last December, U.S. Chief District Judge in the District of Utah Robert Shelby, wrote that he was “concerned the Commission made materially false and misleading representations” in their pursuit of the restraining order that “undermined the integrity of the proceedings.”

Following Shelby’s order, the SEC filed a response with the court admitting that its team “fell short” of standards but called sanctions “unwarranted.” In addition to apologies from Welsh and Watkins, the SEC’s Division of Enforcement Director Gurbir Grewal personally apologized for his agency’s “shortfall” in the case in a Dec. 21, 2023 court filing.

The agency also moved to dismiss the case without prejudice – meaning they would retain the ability to refile the case against Debt Box – but Shelby denied the motion, arguing that his court had “not yet had occasion to evaluate the underlying merits of [the] action.”

Apologies were not enough to get the SEC out of hot water – in February, five Senate Republicans sent SEC Chairman Gary Gensler a letter blasting the agency for conducting itself in “an unethical and unprofessional manner” and suggesting that “other enforcement cases brought by the Commission may be deserving of scrutiny.”

In March, Shelby ruled that the SEC had committed a “gross abuse of power” and ordered it to pay legal costs for Debt Box.

The case is ongoing.

UPDATE (April 22, 2024 at 19:50 UTC): Adds that the SEC declined to comment.