SEC to Shutter Office Behind Failed DEBT Box Crypto Lawsuit

The judge dismissed the SEC case against DEBT Box last week, after the regulator filed for dismissal without prejudice.

The Salt Lake City office of the Securities and Exchange Commission (SEC) will close down after seeing "significant attrition" among its staff, some of whom were pushed out over the failed fraud lawsuit against crypto company DEBT Box.

The SEC lawyers on the case, Michael Welsh and Joseph Watkins, resigned in April after a federal judge sanctioned them for committing a "gross abuse of power" in seeking to freeze the assets of DEBT Box on misleading grounds. Just last week, the judge dismissed that case and ordered the SEC to pay DEBT Box $1.8 million in legal fees.

"The agency considered its budget and organizational efficiency in deciding to close the office, and it has no plans to close any other regional offices," the SEC said in a press release.

The regulator's Denver office will take over any enforcement jurisdiction, the SEC said.

The SEC's Salt Lake office was opened in 2018 and had a staff of about 20 people, according to the agency's website. The office handled a variety of enforcement matters, including cases involving securities fraud, insider trading and market manipulation.

The SEC's failed lawsuit against DEBT Box was one of the most high-profile cases handled by the Salt Lake office. The SEC accused DEBT Box of operating an unregistered securities offering and fraud. A federal judge dismissed the case in March 2022, ruling that the SEC had failed to show that DEBT Box's tokens were securities.

The SEC appealed the ruling, but a federal appeals court upheld the dismissal in August. The appeals court also sanctioned the SEC lawyers for making false statements to the court in seeking to freeze the assets of DEBT Box.

The SEC lawyers on the case, Welsh and Watkins, both left the agency in April. Welsh joined the law firm Paul, Weiss, Rifkind, Wharton & Garrison, while Watkins joined the law firm Davis Polk & Wardwell.

The closure of the SEC's Salt Lake office will leave the Denver office as the only SEC regional office in the Rocky Mountain region. The Denver office has a staff of about 30 people and handles a variety of enforcement matters, including cases involving securities fraud, insider trading and market manipulation.