The U.S. Securities and Exchange Commission (SEC) faced major repercussions after a federal judge concluded that the agency had misused its authority in a case against a crypto firm. Two SEC lawyers, Michael Welsh and Joseph Watkins, reportedly resigned this month following severe criticism from the judge regarding the agency’s tactics.

The two lawyers served as lead attorneys in the SEC’s case against Digital Licensing Inc., a cryptocurrency platform also known as Debt Box. Sources familiar with the situation revealed to Bloomberg Monday that an SEC official informed the lawyers that they would be terminated if they did not resign.
The SEC accused Debt Box of defrauding investors and requested the court to freeze the company’s assets and put it under receivership. However, Judge Robert Shelby later discovered that the SEC’s case relied on false statements and lacked substantial evidence. Criticizing the arguments presented by Welsh and the evidence provided by Watkins, the judge concluded that the SEC had made “materially false and misleading representations” in its lawsuit against the cryptocurrency firm.Judge Shelby sanctioned the SEC for its “gross abuse of power.” The SEC’s enforcement chief and Welsh subsequently apologized to the court. The securities regulator stated that it “deeply regrets” the errors made in the case against Debt Box and promised to “conduct mandatory training” for staff involved to avoid similar errors in the future. The SEC has attempted to dismiss the case against the crypto firm without prejudice, but a final decision from the judge is pending.
In February, five U.S. senators expressed their concerns to SEC Chairman Gary Gensler regarding the agency’s enforcement action against Debt Box. The lawmakers stressed: “We are greatly concerned by the Commission’s conduct in this case.”