Coinbase has escalated its legal battle with the U.S. Securities and Exchange Commission (SEC) by requesting a federal court to impose sanctions on the regulatory body. This demand follows the revelation that nearly a year’s worth of text messages from former SEC Chair Gary Gensler have been permanently deleted.
The exchange argues that the deletion of these communications constitutes a violation of court orders and undermines public trust in the SEC’s transparency and accountability. The erased texts span a critical period from October 2022 to September 2023, during which the cryptocurrency market experienced significant turmoil, including the collapse of FTX and various enforcement actions targeting Coinbase itself.
Critics of the SEC have spotlighted the absence of these communications as particularly concerning, given that they might have shed light on the agency’s evaluations of Ethereum, its enforcement strategies, and its overarching policies regarding digital assets.
An investigation by the SEC’s Office of Inspector General (OIG) disclosed that the lost messages were due to an internal policy that wipes agency devices remotely if they are offline for more than 45 days. Gensler’s phone was reset under this policy, resulting in the loss of all of its text communications. Investigators noted that many of the deleted texts would have qualified as official federal records under existing regulations, suggesting that better recordkeeping protocols were needed. The OIG’s report indicated that this incident wasn’t merely a one-off technical glitch but indicative of broader systemic issues, including flawed device management protocols and inadequate backup systems, compounded by a lack of effective warnings regarding data security.
In its legal filings, Coinbase has accused the SEC of violating the Freedom of Information Act (FOIA) and previous court orders. The exchange claims the agency conducted overly narrow searches, delayed document production, and only disclosed the record loss long after it had happened. As a result, Coinbase argues, the public is left with an incomplete understanding of how the SEC formulated its policies concerning Ethereum and other digital assets during a period of substantial upheaval in the industry.
Coinbase is not only seeking legal penalties against the SEC but also requesting expedited discovery to ascertain the full extent of the record losses, what efforts the SEC has made to restore the communications, and the reasons behind the delayed disclosure to investors. The company insists that the SEC should be held accountable to the same standards it imposes on private sector entities, particularly as the agency has fined numerous firms over a billion dollars in recent years for failing to maintain proper recordkeeping practices.
This incident has raised serious concerns about the SEC’s credibility, particularly regarding its recordkeeping capabilities. The loss of these texts deprives Congress, the courts, and the public of essential insights into the agency’s enforcement actions and policy development during a tumultuous time in the cryptocurrency sector.
In an effort to mitigate the fallout from the deletions, the SEC has taken steps such as disabling text messaging on various agency devices, notifying the National Archives, and pledging to improve its recordkeeping systems. However, many observers argue these measures appear reactive rather than proactive, emerging only after the issue reached a critical juncture in public scrutiny.
