Coinbase has expressed strong disapproval of the U.S. Securities and Exchange Commission (SEC), accusing the agency of employing a “destroy-and-delay approach” concerning record-keeping in the realm of cryptocurrency litigation. The crypto exchange has raised alarming claims that the SEC has erased vital text messages tied to ongoing legal matters.
In a recent move, Coinbase, in collaboration with historical research firm History Associates, filed a case with the federal court, seeking transparency regarding the SEC’s evolving stances on cryptocurrency regulations via a Freedom of Information Act (FOIA) request. Coinbase’s Chief Legal Officer, Paul Grewal, has articulated that this legal action aims to confront what he labels a “gross violation of public trust” by the SEC and to ensure that similar infractions do not recur.
Grewal highlighted the seriousness of the situation on social media platform X, revealing that the SEC has indeed destroyed documents it was obligated to retain. He referenced findings from the SEC’s own Inspector General, which provided evidence that critical records—specifically text messages—were disposed of despite ongoing requests for all communications pertinent to regulatory and enforcement decisions related to cryptocurrencies.
Recent reports from Bitcoinist detailed that the SEC has come under scrutiny following an Office of Inspector General (OIG) report. This report outlined several preventable errors originating from the SEC’s IT department, which culminated in the loss of crucial records connected to crypto enforcement actions during the tenure of former SEC Chairman Gary Gensler. Notably, it was reported that text messages from Gensler between 2022 and 2023 were among the material that was lost.
The lawsuit mentions that the SEC recently disclosed its failure to comply with FOIA requirements, which has severely hindered public investigations into the agency’s activities. Coinbase’s court filing further revealed that text messages from Gensler and other SEC officials were omitted when processing FOIA requests, despite being official agency records. Alarmingly, it was noted that these messages were destroyed after the FOIA requests had been submitted, but prior to any litigation movements.
The documentation also claims that over 20 other senior SEC officials may have faced similar issues concerning lost text messages, with many more at risk of being lost permanently. Despite being aware of these severe concerns for two years, the SEC has reportedly failed to disclose this information during the prolonged 14 months of litigation.
Coinbase’s legal team has asserted that the situation is not a mere oversight, but rather a deliberate act of evidence destruction crucial to ongoing legal proceedings. They have argued that the SEC cannot escape accountability by conducting last-minute searches for records that are already lost.
The court filing contends that the SEC should have acted promptly to preserve records following the initial FOIA requests submitted in the summer of 2023. The agency’s delay in conducting thorough searches has resulted in lost opportunities for the preservation of important texts and corresponding information.
In light of the circumstances, Coinbase emphasized that the SEC, which has imposed significant financial penalties on private entities for similar failures regarding the preservation of communication records, should similarly be held accountable for its conduct. The exchange is urging the court to conduct a hearing to mandate a comprehensive review and production of all relevant texts that were overlooked in prior searches.
Furthermore, Coinbase is requesting discovery measures to investigate the agency’s record management practices and seek appropriate sanctions to address the alleged spoliation of evidence.
The ongoing developments underscore a contentious relationship between the crypto sector and regulatory bodies, raising concerns about transparency and accountability in the enforcement of regulations within the industry.
