Two attorneys from the U.S. Securities and Exchange Commission (SEC), embroiled in controversy over their handling of a crypto case, have resigned following severe court reprimands for what was described as a “gross abuse” of power. The incident, which marks a significant embarrassment for the regulatory body, involves former SEC lawyers Michael Welsh and Joseph Watkins and centers around their management of a lawsuit against the crypto platform DEBT Box.

Reports indicate that both Welsh and Watkins, who had only been with the agency for a few months, stepped down after a district court sanctioned the SEC in March. Chief Judge Robert J. Shelby criticized the SEC for submitting misleading statements and falsifying evidence in its pursuit of Digital Licensing Inc., known as DEBT Box, which the SEC accused of a $50-million crypto fraud.

This punitive action by Judge Shelby highlights a serious breach of trust and procedure, stating that the conduct "substantially undermined the integrity of these proceedings and the judicial process." He pinpointed the SEC's actions as a deliberate misrepresentation of facts during legal proceedings, particularly condemning the misleading statements made during the temporary restraining order hearing against DEBT Box.

The controversy comes at a time when the SEC under Chair Gary Gensler has faced criticism for its aggressive regulatory tactics in the cryptocurrency industry, which some claim stifles innovation and places U.S. competitiveness at risk. The resignations and the court's ruling could further fuel the debate over the SEC's strategy of "regulation by enforcement," which has been a contentious issue within the crypto community.

The situation raises significant questions about the future of regulatory oversight in the rapidly evolving digital asset space, and how the SEC will recalibrate its approach in the wake of this legal setback.