SEC Lawyers Resign Following ‘Gross Abuse of Power’ in Crypto Case
In a shocking turn of events, SEC lawyers Michael Welsh and Joseph Watkins have resigned this month after the regulator was sanctioned by a federal judge in a crypto case against Digital Licensing Inc., also known as DEBT Box. The case, which alleged a $49 million crypto fraud scheme, took a dramatic turn when Judge Robert Shelby found that the SEC had made false statements, misrepresentations, and lacked evidence.
The lead attorneys in the DEBT Box case were reportedly told by SEC officials that they would be terminated if they stayed, according to a Bloomberg report on April 22. This latest development has put the SEC on the backfoot once again, as Judge Shelby rebuked the regulator’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.
The judge faulted arguments made by attorney Welsh and evidence provided by investigative attorney Watkins, highlighting instances where the SEC’s claims did not hold up in court. This setback for the federal regulator comes on the heels of several high-profile losses in crypto court cases, with more still in progress, including against Coinbase and Ripple.
Commenting on the situation, BlockWorks founder Jason Yanowitz remarked that SEC Chairman Gary Gensler is “hanging on by a thread these days.” Ripple CEO Brad Garlinghouse also weighed in, stating that it feels appropriate for his firm to file its response on the same day that two SEC lawyers resigned for their misconduct in the DEBT Box case.
Popular trader and investor “DCinvestor” added, “Rotten cultures start at the top,” pointing to a potential systemic issue within the SEC. The controversy continued to unfold on April 23 when ConsenSys product manager Jimmy Ragosa claimed to have been one of the SEC lawyers who resigned, joking about his role in meetings with ETH ETF issuers.
As the fallout from the DEBT Box case continues to reverberate, the crypto community is left questioning the integrity and effectiveness of the SEC’s regulatory efforts in the digital asset space. The resignation of Welsh and Watkins serves as a stark reminder of the challenges and controversies facing the regulatory body in its oversight of the rapidly evolving crypto industry.
