SEC prosecutors quit after ‘abuse of power’ in DEBT Box case

Two SEC lawyers, Michael Welsh and Joseph Watkins, have resigned from the agency due to “materially false and misleading representations” made in a crypto case last year.

The pair were reportedly instructed to quit the securities regulator or be fired following their respective parts in the lawsuit against Digital Licensing Inc., commonly known as DEBT Box.

Bloomberg first reported the news on April 22, citing unnamed sources familiar with the matter who confirmed that Welsh and Watkins bowed out from the U.S. SEC earlier this month. 

The resignations came after Federal District Court Judge Robert Shelby reprimanded the SEC for abuse of power in the DEBT Box case, in which Welsh was the Commission’s primary attorney, and Watkins led the investigative team. 

SEC vs. DEBT Box

In July, DEBT Box and its founders were accused of stealing over $49 million from investors. Welsh and Watkins argued that the crypto firm was moving money offshore, petitioning Judge Shelby and the court to freeze assets. The motion was granted, and DEBT Box was placed in receivership as an extra measure. 

However, Judge Shelby overturned his ruling after further evaluating the commission’s argument, which found that the duo made incorrect statements in court. The Director of the SEC’s Division of Enforcement, Gurbir Grewal, later apologized for apparent misconduct, while the court decided that DEBT Box was due monetary compensation to foot legal fees. 

Following sanctions against the Wall Street watchdog, federal prosecutors motioned to dismiss the case without prejudice. As a result, DEBT Box is suing the regulator and seeking around $1.5 million in damages.