At least two lawyers from the US SEC have resigned in response to the agency being sanctioned by a federal judge for “gross abuse of power” in a case against a crypto company.
SEC lawyers Michael Welsh and Joseph Watkins resigned this month after the regulator was sanctioned by a federal judge in a crypto case against Digital Licensing Inc., otherwise known as DEBT Box.
Judge Robert Shelby found that the SEC made false statements, misrepresentations, and lacked evidence in its case against the digital asset firm in which it alleged a $49 million crypto fraud scheme.
The lawyers, who were lead attorneys in the DEBT Box case, were told by SEC officials that they would be terminated if they stayed, according to a Bloomberg report on April 22.
SEC on The Backfoot Again
Judge Shelby rebuked the SEC’s conduct, reversed an asset freeze on DEBT Box, and ordered the SEC to pay some of DEBT Box’s legal fees as a sanction. Additionally, the judge faulted arguments made by attorney Welsh and evidence provided by investigative attorney Watkins.
In one instance, Welsh told the judge that DEBT Box was closing bank accounts and transferring assets overseas, but the court found that this wasn’t the case. DEBT Box was among many crypto companies facing lawsuits last summer from the SEC for allegedly defrauding investors of nearly $50 million through the sale of unregistered securities.
It is the latest setback for the federal regulator, which has lost a couple of high-profile crypto court decisions and still has several, including Coinbase and Ripple, in progress.
“Gary G hanging on by a thread these days,” commented BlockWorks founder Jason Yanowitz.
Ripple CEO Brad Garlinghouse said it feels appropriate that his firm files its response on the same day that two SEC lawyers “resign” for their (mis)conduct in the Debt Box case.
“The US will be picking up the pieces of the agency’s disastrous policies long after Gensler is gone.”
“Rotten cultures start at the top,” commented popular trader and investor, “DCinvestor.”
More Dirty Laundry
On April 23, ConsenSys product manager Jimmy Ragosa claimed to have been one of the SEC lawyers who resigned today.
“I joined in 2023 and was in charge of leading the SEC meetings with ETH ETF issuers,” he said in an apparent parody before quipping:
“My job was to stick my fingers in my ears and scream loudly every time they asked us how to make their application compliant.”