SEC Attorneys Step Down Following Criticism in Crypto Lawsuit Against DEBT Box


Michael Welsh and Joseph Watkins, two attorneys with the Securities and Exchange Commission (SEC), tendered their resignations on April 22 in response to a federal judge’s sanction and harsh criticism of the regulatory body’s handling of a case involving cryptocurrencies.

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At first, the SEC legal team, headed by lawyer Michael Welsh, had persuaded the judge to put DEBT Box’s assets on hold, claiming the company was relocating to Dubai, where U.S. regulations wouldn’t apply.

Amid Controversy Surrounding the DEBT Box Case, SEC Attorneys Resign

Sources with knowledge of the situation claim that Welsh and Watkins resigned after being told by an SEC representative that they would be fired if they continued. The attorneys were spearheading the SEC’s legal action against DEBT Box, a cryptocurrency platform operated by Digital Licensing Inc.

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The federal district court judge in Salt Lake City, Robert Shelby, claimed that the lawsuit against DEBT Box was plagued by accusations of false statements, misrepresentations, and a lack of evidence. Shelby censured the SEC in March for what he considered to be a “gross abuse” of authority, which prompted the head of enforcement to issue an apology for the agency’s errors.


DEBT Box’s assets were frozen and a receiver was named after the SEC accused the company’s executives of defrauding investors out of at least $50 million in July 2023. But after Shelby found possible false and misleading statements made by the SEC, the asset freeze was lifted. The judge’s decision mandated that the SEC pay a portion of DEBT Box’s legal costs.

Shelby questioned Welsh’s claims as well as the supporting documentation Watkins and his associates offered. Welsh’s false allegation that DEBT Box was closing bank accounts and moving assets abroad was one example that the court brought to light. Welsh apologized to the court after the SEC said that a misunderstanding caused this error.


An unexpected turn was taken in the DEBT Box case. The defendants contested the Securities and Exchange Commission’s (SEC) allegations, claiming that the regulator had falsified information in order to secure a temporary injunction that prevented the crypto platform’s assets from being used.

Judge Robert Shelby asked the SEC to defend its actions in response to the charges made by the defendants. Although the SEC’s attorneys admitted that their strategy was flawed, they pleaded with the judge not to impose formal penalties.

Amid growing criticism, the SEC completely withdrew the lawsuit in January. Nonetheless, Judge Shelby refused to dismiss the case “without prejudice,” preventing the SEC from resubmitting it in the future.

Judge Shelby Criticizes SEC Handling of DEBT Box Case

Judge Shelby ordered the Securities and Exchange Commission (SEC) to “show cause” in December, a court order requiring the agency to provide evidence or justification for its actions. Although the SEC admitted to lacking transparency, it argued that formal penalties were unnecessary.

SEC lawyer Michael Welsh was singled out by Judge Shelby for his part in deceiving the court and attempting to obfuscate the facts.

Welsh acknowledged that his statement from the TRO hearing was untrue, according to him. “He and the Commission carefully changed the language to obscure and continue the misconduct, instead of correcting the misstatement.”

Gurbir Grewal, the chief of SEC enforcement, responded to the court’s scrutiny by expressing regret for the department’s actions and announcing steps to rectify the situation, such as assigning new attorneys and requiring enforcement personnel to undergo training. Later, motions were made to reimburse the SEC for costs incurred during the case, including legal fees, which came to over $1.5 million.CRYPTOCASTER® - DECENTRALIZED FREEDOM!

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