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SEC Lawyers Reportedly Resign After “Gross Abuse” Of Power In DEBT Box Case

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Two lawyers for the US Securities and Exchange Commissions (SEC) have resigned after the agency was sanctioned by a judge for “gross abuse” of power and acting in “bad faith” when it misrepresented facts in the DEBT Box case, Bloomberg reported.

Joseph Watkins and Michael Welsh resigned earlier this month, according to the report. This was after the lawyers were warned that they would be terminated if they stayed, sources familiar with the matter said, the Bloomberg story reported.

What is the US Securities and Exchange Commission (SEC)? | The Block

SEC Lawyers Depart After Short Stint At The Agency

Both Welsh and Watkins were relatively new to the agency, with Watkins having served as a trial attorney for the regulator from December 2022. Watkins had started acting as an attorney at the Division of Enforcement in January 2023. 

Their resignations come after Chief Judge Robert J. Shelby, the federal judge hearing the SEC’s case against DEBT Box, sanctioned the agency in March for making false statements and misrepresentations in the legal battle. 

A March 18 filing by the judge said that the commission’s conduct in the DEBT Box case “constitutes a gross abuse of power.” He added that the SEC “substantially undermined the integrity” of the proceedings and the judicial process. 

DEBT Box Accused Of Running A $50-Million Crypto Fraud Scheme

It all started when the SEC obtained a court order that allowed it to freeze DEBT Box’s assets and restrain its principals after they were accused of a $50 million fraud.

“Welsh knew his statement from the TRO hearing was incorrect,“ Judge Shelby said. He criticized the agency for not rectifying the mistake and lambasted it for attempting to “…subtly shift the language to gloss over and perpetuate the misconduct.” 

Republican lawmakers also chastised the agency for its “unethical and unprofessional” handling of the DEBT Box case in a Feb. 7 letter to the agency’s chair, Gary Gensler. Five senators on the Senate Banking Committee, including J.D. Vance (R-Ohio) and Cynthia Lummis (R-Wyo.) signed the letter.

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