Two SEC Lawyers Resign Following Debt Box Sanctions Fiasco: Bloomberg

Michael Welsh, a former key lawyer in the Debt Box legal case, and Joseph Watkins, an investigative attorney whose statement initiated the SEC’s lawsuit against Debt Box, allegedly faced the threat of being let go if they did not resign, according to sources familiar with the matter.

An SEC representative refused to provide a statement on the matter, yet a court document filed on April 15 states that Welsh is now jobless from the Securities and Exchange Commission. However, Welsh’s LinkedIn profile continues to indicate his employment with the agency.

In December 2020, Judge Robert Shelby of the US District Court in Utah expressed worry that the Commission had made “misrepresentations that were significantly untrue and misleading” during their application for a restraining order. These falsehoods, according to Judge Shelby, compromised the honesty of the entire legal process.

According to Shelby’s instruction, the Securities and Exchange Commission (SEC) submitted a court document acknowledging that their team did not meet the required standards but contested the imposed sanctions as unnecessary. Furthermore, apologies were expressed by both Welsh and Watkins, while the SEC’s Enforcement Division Director, Gurbir Grewal, apologized for the agency’s failure in the case through a December 21, 2023 filing with the court.

The agency attempted to drop the lawsuit against Debt Box without restricting their ability to refile it later. However, Shelby disagreed and stated that his judicial panel hadn’t assessed the case’s substantial grounds yet.

The SEC faced criticism from five Senate Republicans in February, who accused the agency of acting unethically and unprofessionally. They urged SEC Chairman Gary Gensler to review other enforcement cases handled by the Commission, implying that some may require closer examination.

In March, the court found that the Securities and Exchange Commission (SEC) had overstepped its bounds and misused its authority towards Debt Box. Consequently, the SEC was mandated to cover Debt Box’s legal expenses.

The case is ongoing.

UPDATE (April 22, 2024 at 19:50 UTC): Adds that the SEC declined to comment.