Two U.S. Securities and Exchange Commission (SEC) lawyers were forced to resign after a federal judge sanctioned the agency last month for committing a «gross abuse of power» in attempting to obtain a temporary restraining order against Crypto company Debt Box. located in Utah. Bloomberg reported this on Monday.
Michael Welsh, the former lead attorney in the Debt Box case, and Joseph Watkins, the investigating attorney whose statement formed the basis for the SEC's case against Debt Box, were reportedly forced to resign or be fired, according to the report. citing people familiar with the situation.
An SEC spokesman declined to comment, but said in an April 15 court filing that Welsh «is no longer employed by the Securities and Exchange Commission.». Watkins' LinkedIn page says he is still employed by the agency.
Last December, Chief U.S. District Judge for the District of Utah Robert Shelby wrote that he was «concerned that the Commission has made materially false and misleading statements» while enforcing the restraining order that «undermine the integrity of the proceeding.»
Following Shelby's order, the SEC filed a response acknowledging that its team «failed» to meet standards but called the sanctions «unjustified.». In addition to Welsh and Watkins' apologies, SEC Enforcement Director Gurbir Grewal personally apologized for his agency's «deficiencies» in the case in a court filing dated Dec. 21, 2023.
The agency also moved to dismiss the case without prejudice—meaning they would retain the ability to re-file the case against Debt Box—but Shelby denied that motion, arguing that his court «has not yet had the opportunity to evaluate the fundamental merits of [the case's] action «
The apology wasn't enough to get the SEC out of its HOT situation: In February, five Senate Republicans sent a letter to SEC Chairman Gary Gensler criticizing the agency for «unethical and unprofessional conduct» and suggesting it look at «other enforcement cases brought by the SEC USA» (SEC). The commission may deserve close attention.»
In March, Shelby ruled that the SEC had committed a «gross abuse of power» and ordered it to pay Debt Box's legal fees.
The case continues.
UPDATE (April 22, 2024 19:50 UTC): Adds that the SEC declined to comment.