Coinbase Demands Answers Regarding Deleted SEC Texts

Coinbase has asked a federal court to order an “expedited proper search” of deleted text messages that were made by former US Securities and Exchange Commission (SEC) Chair Gary Gensler after it was revealed the the agency erased a year’s worth of his communications.

The US-based crypto exchange submitted a filing through History Associates. In the filing, Coinbase referenced a Sept. 3 report from the Inspector General that said the SEC had “excluded officials’ text messages when processing FOIA requests, even though many qualified as agency records to FOIA.” 

The report also found that nearly a year of Gensler’s government text messages from Oct. 18, 2022, to Sept. 6, 2023, were lost due to avoidable IT/record-keeping missteps that included a factory reset before a backup was performed. 

The time the missteps took place coincided with the collapse of FTX and the SEC’s heightened enforcement actions against crypto exchanges, which included Coinbase. 

Gensler-Led SEC Dragged Its Feet In Case, Coinbase Says

The filing from Coinbase comes after the SEC initiated a lawsuit against the company in 2023, alleging that it ran “an unregistered exchange, broker, and clearing agency.” In February, this case was dropped in principle, and was formally dismissed a week later. 

Coinbase’s legal case was one of the many lawsuits that the Gensler-led SEC initiated against companies operating in the crypto space, accusing them of dealing with unregistered securities. 

During the lawsuit, Coinbase had filed FOIA requests in July and August of 2023 “to try to shed light on the SEC’s views on how securities laws apply to digital assets.” 

However, the SEC “responded by issuing blanket denials of those requests under Exemption 7 (A)” instead of gathering all the text messages between Gensler and other officials that could have shown the SEC’s thinking at the time, the filing said. 

When History Associates filed another suit regarding the records in June 2024, the SEC all but abandoned Exemption 7 (A) and claimed that it needed an additional three years even to begin to conduct the FOIA review,” Coinbase and History Associates said.

“Making matters worse, the SEC then proceeded to drag its feet at every stage of this case,” they added, arguing that the agency did this knowing full well that the messages were deleted.

Coinbase Wants SEC Held To Same Standard They’ve Used To Fine Firms Millions Of Dollars

Coinbase says that the loss of the text messages means that the true extent of “the SEC’s stonewalling” will never be known. 

“The SEC has imposed more than a billion dollars in fines on private parties for failures to preserve securities-related text messages and similar communications within the last few years alone,” Coinbase wrote in the filing.

The exchange added that those fines stemmed from the SEC’s argument that “everybody should play by the same rules” and be held accountable for violating record keeping requirements.

Coinbase now wants the agency to be “held to its own standard.” 

Coinbase’s Chief Legal Officer Paul Grewal said on X that the latest filing was made to ask the federal court to address the SEC’s “gross violation of public trust to ensure that it never happens again.” 

Coinbase Legal Chief wants to address “gross violation” (Source: X)

SEC’s Crypto Stance Changes Following Gensler Exit

After US President Donald Trump took office, Gensler announced his resignation. Ever since then, the SEC’s stance towards digital assets seems to have pivoted, mainly due to the pro-crypto Trump Administration.

As part of that change in stance, the SEC has dropped several high-profile lawsuits against US companies operating in the crypto space, along with the dismissal of the agency’s case against Coinbase. 

New SEC Chair Paul Atkins has also unveiled the agency’s “Project Crypto” initiative, which aims to modernize securities regulations and enable US financial markets to move on-chain. 

The SEC has also issued new guidance on staking, and said that certain staking activities are not considered securities offerings. These staking activities include solo staking, delegated staking, and some staking-as-a-service arrangements. 

Towards the end of July, the agency also approved orders to allow “in-kind” creations and redemptions of shares by authorised participants for crypto ETPs (exchange-traded products). Prior to this, spot Bitcoin and Ethereum ETPs were limited to “in-cash” redemptions.

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