Coinbase Seeks Court Sanctions Against SEC Over Missing Gensler Texts

Coinbase seeks court sanctions against the SEC over deleted texts from Gary Gensler, including records on FTX and crypto enforcement actions.

Coinbase is pushing for court sanctions against the U.S. Securities and Exchange Commission (SEC). This is after discovering that year’s worth of text messages from former SEC Chair Gary Gensler were deleted. 

These missing records cover a crucial period. These include the collapse of FTX and enforcement actions involving Coinbase. Moreover,  the company claims the SEC’s failure to preserve these communications undermines public trust and transparency in the agency’s regulatory actions.

SEC’s Record-Keeping Issues Exposed

In a recent filing, Coinbase pointed to the deletion of Gensler’s text messages from October 2022 to September 2023. The SEC’s failure to preserve these records has raised concerns about transparency. 

Coinbase says the missing texts hold key details about the FTX collapse that rattled the crypto market. They also add that the messages cover enforcement actions tied to Coinbase.

According to a report from the SEC’s Office of Inspector General, Gensler’s texts were erased as a result of a new agency policy. This policy involved remotely wiping the devices of SEC employees who were disconnected from the network for more than 45 days.

Gensler’s phone was reset, resulting in the permanent loss of his text messages during that time. Efforts to recover the data were unsuccessful.

Coinbase Demands Sanctions and Expedited Discovery

Coinbase has now asked the court to impose sanctions on the SEC for not properly handling official communications. 

The company is also pushing for expedited discovery to determine how many records were destroyed and to learn about the SEC’s recovery efforts. It also wants to know why the agency failed to disclose the missing records sooner.

The company’s legal argument rests on the claim that the SEC did not meet its obligations under the Freedom of Information Act. “The failure to preserve these records is a violation of FOIA and undermines public trust,” Coinbase said in its court filing.

Broader Concerns About SEC’s Record-Keeping

The issues with Gensler’s texts are not isolated. According to the Inspector General’s report, texts from over 20 other senior SEC officials may also be missing.

Additionally, devices belonging to nearly 40 other officials were not properly backed up. This raises concerns about the potential loss of other critical records.

Coinbase’s filing suggests that the missing communications may have been crucial in shaping the public’s understanding of the SEC’s stance on cryptocurrency. Hence, it becomes harder to review and assess the SEC’s actions during a turbulent period for the industry.

Impact on SEC’s Credibility and Transparency

The missing records come at a time when the SEC is under intense scrutiny for its handling of cryptocurrency regulations. 

The FTX collapse, in November 2022, highlighted gaps in the agency’s ability to monitor and regulate digital asset firms effectively. Coinbase’s legal action reflects broader concerns about the SEC’s credibility in overseeing the crypto space.

In its filing, Coinbase argued that the SEC should be held to the same standards that it enforces on private firms. The company pointed out that the SEC has fined several businesses over the years for failing to maintain proper records. 

Coinbase is now seeking similar accountability for the agency’s own record-keeping failures.