Recently, two lead SEC attorneys, Michael Welsh and Joseph Watkins, resigned amidst controversies surrounding the legal case against crypto firm DEBT Box. According to reports by Bloomberg on April 22, the regulator had intended to terminate both lawyers if they did not resign voluntarily. Despite the resignation, neither Welsh nor Watkins provided comments in response to media inquiries. The SEC itself, along with a union representative, also chose not to offer any comments on the situation.
Welsh and Watkins had been serving as SEC trial lawyers for approximately 18 months, during which they handled the DEBT Box case. The handling of this case stirred controversy due to the inaccuracies in the information presented by the lawyers in court. These inaccuracies were used to obtain a temporary restraining order and asset freeze against the company. Subsequent investigations revealed that false and misleading statements were made by the SEC counsel to justify their actions, including the suggestion that DEBT Box had closed accounts prior to a hearing, which was proven to be untrue.
In December 2023, the SEC admitted to errors in the case and attempted to drop it in January. However, DEBT Box challenged the attempted dismissal, leading to Judge Robert Shelby sanctioning the SEC for abuse of power in March. The agency was compelled to pay legal fees in the case as a result of the judge’s ruling. The whole ordeal raised questions about the integrity and practices of the SEC’s legal team.
Amidst the resignations of Welsh and Watkins, there were speculations regarding the potential resignation of SEC chair Gary Gensler. However, these speculations were quashed by FOX Business reporter Eleanor Terret, who clarified that while Gensler’s position may be at stake with the upcoming US elections, he is unlikely to resign voluntarily. It was suggested that the White House would likely prevent Gensler from resigning due to the challenges in nominating a replacement in the current environment. Additionally, there were indications that SEC commissioner Caroline Crenshaw’s term may not be renewed, although the SEC has not officially commented on this matter.
The resignations of the lead SEC lawyers and the uncertainties surrounding the SEC chair’s position have raised concerns about the transparency and accountability within the regulatory body. The handling of the DEBT Box case highlighted the need for stricter adherence to legal standards and ethical practices within the SEC’s legal team. The upcoming developments within the SEC leadership will be closely monitored by industry observers and stakeholders.