Coinbase Files Legal Motion Demanding Court Sanctions After SEC’s Mass Deletion of Gensler Text Messages

In a dramatic escalation of its ongoing battle with U.S. regulators, cryptocurrency exchange Coinbase has filed a legal motion on Thursday requesting a hearing to address the SEC Office of the Inspector General’s investigation, which revealed that the Securities and Exchange Commission permanently deleted nearly a year’s worth of text messages from former Chairman Gary Gensler and other senior officials.

Missing Communications Cover Critical Period in Crypto Enforcement

The deleted text messages span from October 2022 through September 2023, a period that overlapped with the collapse of FTX and the SEC’s heightened enforcement actions against crypto exchanges, including Coinbase. This timeframe represents some of the most significant developments in cryptocurrency regulation and enforcement history.

According to the SEC Office of the Inspector General’s investigation, which found that the agency deleted nearly one year’s worth of text messages from Gensler and other senior officials in “avoidable” errors, the communications were permanently deleted when the agency’s IT staff “performed a factory reset of the smartphone” under a new policy that automatically wipes devices after 45 days of disconnection from the SEC network.

Violation of FOIA Requests and Federal Record-Keeping Requirements

Coinbase’s legal action centers on allegations that the SEC failed to comply with multiple Freedom of Information Act (FOIA) requests. The exchange said the SEC should explain why it did not conduct a full search of agency records, including text messages from Gensler and senior SEC officials, when it requested the messages in several Freedom of Information Act (FOIA) filings from 2023 and 2024.

The Inspector General’s investigation revealed damaging evidence about the nature of these communications. The Inspector General found that 38% of recovered Gensler texts involved “mission-related communications,” including discussions related to crypto enforcement, contradicting claims that he used texts only for administrative purposes. Particularly concerning was one May 2023 conversation [that] involved Gensler, his staff, and the Enforcement Division Director discussing the timing of actions against crypto trading platforms.

Double Standards and Regulatory Hypocrisy Allegations

Coinbase’s Chief Legal Officer Paul Grewal highlighted what the company sees as regulatory hypocrisy. Grewal said the information creates a double standard problem for the SEC, which imposed over $1 billion in fines on financial firms for recordkeeping violations during Gensler’s tenure. He added that the agency emphasized that “everybody should play by the same rules,” while pursuing enforcement actions for identical text message preservation failures.

The timing of the deletions has raised additional concerns about transparency. Had the SEC conducted proper searches when the FOIA requests were submitted in 2023, “the agency could have reviewed and processed those records then, or at least taken steps to preserve them” before the messages were destroyed.

Broader Scope of Missing Records

The problem extends beyond Gensler’s communications alone. Text messages from more than 20 other high-ranking SEC officials have also reportedly been erased by the federal agency’s IT team in a widespread factory-reset. Furthermore, History Associates, representing Coinbase, argues that 40 additional senior SEC officials face an ongoing risk of losing text messages due to backup system failures.

Legal Demands and Court Action

In its court filing submitted through History Associates, Coinbase has asked the federal court to order an “expedited proper search” of Gary Gensler’s deleted text messages. The company is seeking multiple forms of relief, including an “expedited discovery, sanctions, and immediate production of all responsive texts”.

“The Gensler SEC destroyed documents they were required to preserve and produce. We now have proof from the SEC’s own Inspector General,” Coinbase Chief Legal Officer Paul Grewal said on X on Thursday. “Today we ask the federal court to address this gross violation of public trust to ensure that it never happens again.”

Industry Impact and Regulatory Credibility

The revelations have sparked broader discussions about regulatory accountability in the cryptocurrency sector. The crypto industry is accusing the SEC of raising a “credibility crisis” that can weaken the regulator’s position in future enforcement actions. Industry observers suggest that if sanctions are imposed, it could create legal precedent allowing defendants to challenge both the SEC’s enforcement theories and its credibility in handling evidence.

This case represents a significant test of regulatory accountability, particularly as the SEC under new leadership seeks to rebuild its relationship with the digital asset industry. The outcome could have far-reaching implications for how federal agencies handle record-keeping requirements and transparency obligations in the rapidly evolving cryptocurrency landscape.

The legal motion comes as part of Coinbase’s broader effort to obtain transparency from the SEC regarding its cryptocurrency-related enforcement decisions and internal communications that shaped the agency’s approach to digital asset regulation during one of the most turbulent periods in crypto history.

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