SEC Attorneys Quit in Wake of Judge's Harsh Sanctions for 'Gross Abuse' of Power in Crypto Case

Following a court's condemnation of the SEC for "gross abuse" of power in a crypto case, two resignations have been tendered by SEC attorneys Michael Welsh and Joseph Watkins. Judge Robert Shelby's decision denounced the SEC for misrepresentations and false statements in their case against DEBT Box, leading to sanctions against the agency. The resignations highlight ongoing criticisms of the SEC's aggressive enforcement approach under Chair Gary Gensler, which has raised concerns about regulatory uncertainty and stifled innovation in the crypto industry.

SEC Lawyers Resign Amidst Judge's Sanctions for Abuse of Power in Crypto Case

In a groundbreaking development, two attorneys representing the United States Securities and Exchange Commission (SEC) have tendered their resignations following a federal court's unprecedented sanctions against the agency for "gross abuse" of power and "bad faith" in a cryptocurrency case.

According to a Bloomberg News report on April 22, 2023, Michael Welsh and Joseph Watkins, the lead attorneys in the SEC's case against the crypto platform DEBT Box, resigned earlier this month. Sources close to the matter have revealed that the lawyers were given an ultimatum to resign or face termination.

The resignations come in the wake of a scathing decision by Chief Judge Robert J. Shelby of the Federal District Court in Salt Lake City, Utah. On March 18, Judge Shelby imposed sanctions on the SEC for making false statements and misrepresentations in its case against Digital Licensing Inc., the company behind DEBT Box.

"The Commission's above-described conduct constitutes a gross abuse of the power entrusted to it by Congress and substantially undermined the integrity of these proceedings and the judicial process," Judge Shelby declared in his written ruling.

The SEC had obtained an emergency order in August 2023 to halt DEBT Box's operations, freeze its assets, and issue restraining orders against its principals, alleging a $50 million crypto fraud scheme. However, Judge Shelby found that the evidence presented by the SEC "lacked any basis" and was deliberately distorted.

"Welsh knew his statement from the TRO hearing was incorrect," Judge Shelby wrote. "Rather than correcting the misstatement, he and the Commission attempted to subtly shift the language to gloss over and perpetuate the misconduct."

The resignations and Judge Shelby's sanctions have sent shockwaves through the crypto industry, which has long been critical of the SEC's approach under Chairman Gary Gensler. Critics have accused the SEC of employing a "regulation by enforcement" strategy that has created regulatory uncertainty, stifled innovation, and undermined the United States' competitiveness in the digital asset space.

High-profile enforcement actions by the SEC against crypto platforms include lawsuits against crypto exchanges Coinbase and Binance, as well as an anticipated action against the decentralized finance platform Uniswap.

The SEC's recent setbacks have raised questions about the agency's authority and its ability to effectively regulate the rapidly evolving cryptocurrency market. The crypto industry is closely monitoring the developments, as the outcome of this case could have significant implications for the future of digital asset regulation in the United States.