Two U.S. Securities and Exchange Commission (SEC) attorneys, Michael Welsh and Joseph Watkins, resigned after sanctions and lashings from a federal judge for “gross abuse” of their authority in a cryptocurrency case.
The duo founded Digital Licensing Inc., a cryptocurrency platform known as DEBT Box. He was serving as the lead attorney in a case filed against him. The two resigned after an SEC official informed them they would be terminated if they remained.
The SEC's lawsuit against DEBT Box was marred by misrepresentations, false statements, and lack of evidence. Federal District Court Judge Robert Shelby, who oversaw the case, sentenced the agency for misconduct in March. The SEC's head of enforcement has since apologized for these missteps.
In July, the SEC accused DEBT Box and its executives of defrauding investors of at least $49 million. At the regulator's request, Shelby froze the company's assets and placed the firm into receivership.
However, the asset freeze was rescinded after Shelby found that the SEC may have made “materially false and misleading statements.” The judge penalized the SEC for “gross abuse of the authority entrusted to it by Congress” and ordered the agency to pay a portion of DEBT Box's attorneys' fees.
Shelby faulted the arguments of Welsh, the SEC's lead trial attorney on the matter, and the evidence provided by Watkins and his team. Watkins was the agency's lead investigative attorney on the case.
In one example, Welsh told the judge that DEBT Box had closed its bank accounts and transferred its assets overseas. The court found that this did not happen. An SEC investigator later said a miscommunication led to the error, and Welsh apologized to the court.
In December, SEC enforcement chief Gurbir Grewal apologized to the court for his department's behavior. He said he appointed new lawyers to the case and required training for the agency's enforcement staff.
*This is not investment advice.