Coinbase has taken a significant step by seeking court sanctions against the U.S. Securities and Exchange Commission (SEC) due to the deletion of a year’s worth of text messages belonging to former SEC Chair Gary Gensler. These deleted communications, which span from October 2022 to September 2023, contain critical information pertinent to the events surrounding the collapse of FTX and various enforcement actions involving Coinbase itself.
Coinbase’s legal team argues that the SEC’s failure to preserve these records raises serious questions about the transparency and integrity of the agency’s regulatory actions. The missing texts were reportedly erased under a new SEC policy mandating that devices of employees not connected to the network for over 45 days be remotely wiped. As a result, Gensler’s phone was reset, leading to the permanent loss of his messages, with attempts to recover the lost data proving futile.
In its recent filing, Coinbase has called for sanctions against the SEC for what it describes as inadequate handling of official communications. The company is also urging the court to expedite discovery to ascertain the extent of the records destroyed and to investigate the SEC’s attempts to recover them. Furthermore, it wants clarity on why the missing records were not disclosed to the public sooner.
Coinbase’s legal argument hinges on the assertion that the SEC has violated the Freedom of Information Act (FOIA) by failing to preserve essential records. The company stressed that this failure not only undermines public trust but also hampers a fair review of the SEC’s actions during a tumultuous time for the cryptocurrency industry.
The issue of missing records is not confined to Gensler alone. A report from the SEC’s Office of Inspector General indicates that texts from over 20 other senior SEC officials are also potentially lost, and devices from nearly 40 additional officials were not adequately backed up. This widespread lack of diligence raises alarm bells regarding additional critical communications that may have been similarly compromised.
Coinbase’s allegations are particularly poignant given the wider context of regulatory scrutiny that the SEC is facing, especially following the FTX collapse in November 2022. This incident underscored significant deficiencies in the SEC’s capability to monitor and regulate digital asset companies effectively. As such, Coinbase’s legal action reflects broader concerns about the SEC’s credibility and its role in overseeing the rapidly evolving cryptocurrency sector.
In its court filing, Coinbase emphasizes that the SEC should adhere to the same standards it imposes on private firms. The company pointed out that the SEC has penalized numerous organizations for inadequate record-keeping, thus calling for similar accountability regarding its own failures in this area.
As the legal proceedings unfold, the implications for the SEC’s credibility and the trust of the public in its regulatory effectiveness could be profound. The ongoing debate around the agency’s transparency, especially in the realm of cryptocurrency regulation, is likely to gain further scrutiny as this case progresses.
