Coinbase has leveled serious allegations against the U.S. Securities and Exchange Commission (SEC), claiming that it has “destroyed” critical text messages belonging to former Chair Gary Gensler. This claim has emerged following a report from the SEC’s Office of the Inspector General, which documented that nearly a year’s worth of Gensler’s messages, from October 2022 to September 2023, were permanently erased during a crucial period for crypto enforcement amid heightened regulatory scrutiny.
In light of these revelations, Coinbase is seeking expedited discovery, sanctions, and immediate production of all related text messages, asserting that the SEC’s failure to search for these communications contravenes court-ordered document productions. Paul Grewal, Coinbase’s Chief Legal Officer, took to social media to express the company’s concern, sharing a link to the official court filing that states, “The Gensler SEC destroyed documents they were required to preserve and produce. We now have proof from the SEC’s own Inspector General.”
The Inspector General’s findings indicate that the SEC enforces a policy that wipes devices remotely if they are unconnected to the agency’s network for 45 days. The timing of the data deletion coincided with significant events in the crypto sector, including the collapse of cryptocurrency exchange FTX and the SEC’s aggressive enforcement strategy targeting digital assets. This crucial period has seen increased scrutiny on the SEC about its effectiveness in regulating the burgeoning cryptocurrency market.
In its court filing, Coinbase, with assistance from the historical research firm History Associates, emphasized that the SEC’s “destroy-and-delay approach to records must end immediately.” The filing expresses concern that the destruction of these communications has inflicted “irreparable harm” that cannot be undone. Rishabh Gupta, Director at the Web3 platform Trade Dog Group, remarked on the gravity of the situation, highlighting that the SEC has penalized private companies billions for record-keeping failures but is now accused of committing similar violations. This duality, he asserted, creates a troubling “do as I say, not as I do” dynamic, undermining the SEC’s moral authority.
The Inspector General’s report also pointed out that over 40 senior SEC officials could be facing potential record losses, with 21 devices flagged for confirmed or suspected data destruction. If the SEC had conducted thorough searches when Coinbase submitted Freedom of Information Act (FOIA) requests in 2023, it might have been able to preserve Gensler’s texts before their destruction, as outlined in Coinbase’s court filing.
Shiv Pande, Chief Business Officer at crypto startup BitSave, noted that the erasure of key communications raises significant concerns regarding transparency and accountability. “Regulatory positions carry the heavy responsibility of gatekeeping, where decisions must be anchored in fair principles and objective evidence,” he affirmed.
In the event that sanctions are imposed against the SEC, Gupta warned that such a development could set legal precedents allowing companies to challenge not only the agency’s theories but also its credibility in managing evidence. This could lead to delays in ongoing enforcement actions, complicating negotiations and making it more challenging for the SEC to defend its internal processes.
As this situation unfolds, industry observers will be closely monitoring its implications for the SEC’s future efficacy in regulating the cryptocurrency landscape.
