Two Securities and Exchange Commission lawyers resigned after a federal judge sanctioned and sharply rebuked the Wall Street regulator for “gross abuse” of power in a crypto case.
Michael Welsh and Joseph Watkins stepped down this month after an SEC official told them that they would be terminated if they stayed, according to people familiar with the matter. The pair were lead attorneys on a case against Digital Licensing Inc., a crypto platform known as DEBT Box.
The regulator’s lawsuit against [Digital Licensing Inc., a crypto platform known as] DEBT Box was marred by false statements and misrepresentations, as well as a lack of evidence, according to Robert Shelby, the federal district court judge in Salt Lake City who is hearing the case. Shelby took the extreme step of sanctioning the agency for abuse of power in March, and the SEC’s head of enforcement has apologized for the missteps.
Neither Welsh nor Watkins, who were based out of the regulator’s Salt Lake City office, responded to phone calls requesting comment. The SEC declined to comment, as did a representative of the union representing agency staff.
The Utah crypto firm was put into receivership on SEC staff’s advice:
Back on August 3, 2023 the Securities and Exchange Commission reported that it had obtained a temporary asset freeze, restraining order and other relief against Digital Licensing Inc., knows as Debt Box and at least 16 persons involved in the business.
The SEC claimed in its complaint, unsealed in August of 2023 in the U.S. District Court for the District of Utah, that, as reported in the Deseret News:
[T]he SEC was charging the defendants in an ongoing scheme that began in March 2021 to sell unregistered securities they call “node licenses.” The SEC claims defendants told investors, through online videos, social media posts and investor events, that the node licenses would generate various crypto asset tokens through crypto mining activity and that “revenue-generating businesses in a variety of sectors would drive the value of the various tokens DEBT Box mined, resulting in exorbitant gains for investors.” The SEC says, in reality, as alleged, the node licenses were a sham intended to obscure the fact that the total supply of each token was created by DEBT Box instantaneously using code on a blockchain.
And here is the creepy SEC celebrating its attack on persons that are likely perfectly innocent:
We obtained a temporary asset freeze, restraining order, and other emergency relief against DEBT Box and its four principals, Jason Anderson, his brother Jacob Anderson, Schad Brannon, and Roydon Nelson in connection with a fraudulent scheme to sell crypto asset securities.
— U.S. Securities and Exchange Commission (@SECGov) August 3, 2023
In this disturbing case, the Securities and Exchange Commission attacked and destroyed a proper business. The SEC has consistently opposed crypto businesses during this administration, especially as reflected in the purely anti-crypto banking rule known as SAB 121. Given the SEC's clear and consistent opposition to crypto, the larger question is whether SEC leadership and head of enforcement pressed SEC attorneys to attack these crypto firms. After all, why would attorneys with guarantee income on a special pay scale risk their lifelong paychecks to defraud a crypto firm.
Sanctions on government attorneys are historically rare; however, we hope to see more sanctions especially against the DOJ that similarly runs afoul of virtually all law as it manufactures cases against our former President and January 6ers.
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