In a dramatic turn of events, the SEC’s two lawyers Michael Welsh and Joseph Watkins, resigned under pressure after a federal judge rebuked the regulator of “gross abuse” of power in its lawsuit against the DeFi firm DEBT Box. Welsh and Watkins were part of the team that filed suit against the digital asset company accusing it of misleading investors out of roughly $49 million.
As per their LinkedIn profiles, Welsh’s earlier stint includes being associated with Cooley LLP, where he was involved in defending Kik, a crypto company, against an SEC lawsuit in 2019. On the other hand, Watkins previously worked at Parsons Behle & Latimer before joining the agency, where he quickly rose to a prominent investigative role.
The latest case grabbed significant limelight after Judge Shelby decided to reverse earlier orders that froze DEBT Box’s assets and mandated the SEC to pay part of the legal fees incurred by DEBT Box. Subsequently, the judge censured the agency for “serious procedural errors in a cryptocurrency case” including the submission of misleading statements and insufficient evidence in court. This decision underscored the judge’s frustration with what he identified as the SEC’s overreach and lack of transparency.
SEC Scrambles to Correct Course
Following the court’s decision, SEC Enforcement Chief Gurbir Grewal issued an apology for the agency’s errors and announced that new legal personnel had been appointed to manage the ongoing litigation. Grewal also confirmed that the enforcement division would undergo additional training to avoid future mistakes.
Furthermore, legal teams for DEBT Box have moved to recover over $1.5 million in fees and other costs, asserting that the SEC’s flawed handling of the case has imposed significant financial burdens on their client. Meanwhile, the regulator has proposed to dismiss the lawsuit without prejudice, a decision still pending Judge Shelby’s approval.
This case serves as a critical focal point for the crypto community as a judicial rebuke from a federal judge is relatively rare and underscores serious missteps by the SEC in handling the DEBT Box case. Crypto companies might be emboldened to challenge the regulator’s actions, arguing that it has a history of overreaching its legal boundaries.