Coinbase has filed a motion seeking sanctions against the SEC after an Inspector General report confirmed the deletion of former Chair Gary Gensler's critical text messages, raising concerns about regulatory transparency and integrity.

Executive Summary

Coinbase has initiated legal action against the U.S. Securities and Exchange Commission (SEC), demanding sanctions and expedited discovery following the confirmed deletion of nearly a year's worth of text messages belonging to former SEC Chair Gary Gensler. An SEC Inspector General report revealed that these critical communications, spanning from October 2022 to September 2023, were permanently erased, a period coinciding with significant crypto enforcement actions and the FTX collapse. This incident has been labeled a 'credibility crisis' for the SEC, prompting concerns over its internal record-keeping practices and potential implications for future regulatory enforcement.

The Event in Detail

On September 11, 2025, Coinbase filed a federal court motion seeking accountability from the SEC after an Inspector General report, released on September 3, confirmed the permanent deletion of Gary Gensler's text messages between October 2022 and September 2023. This timeframe is critical, encompassing major developments in the crypto industry, including the collapse of FTX and several enforcement actions against crypto entities, notably Coinbase itself. The deletion occurred due to an SEC policy that remotely wipes devices disconnected for 45 days, leading to Gensler's phone being reset and the complete erasure of his communications. This deletion transpired despite prior Freedom of Information Act (FOIA) requests from Coinbase dating back to mid-2023, which specifically sought internal SEC communications regarding crypto policy and Ethereum's regulatory status. The Inspector General's investigation found that approximately 38% of recovered messages from Gensler's device were 'mission-related communications,' including discussions pertinent to crypto enforcement.

Market Implications

This incident introduces significant uncertainty regarding the fairness and transparency of regulatory processes, potentially increasing legal risks for crypto companies and delaying regulatory progress. Industry observers suggest this represents a 'credibility crisis' for the SEC, potentially undermining its authority and impacting future enforcement actions against crypto firms. The situation may set a legal precedent challenging the SEC's credibility and thoroughness in handling evidence, potentially shifting the balance of power in crypto regulatory disputes or leading to a more defined, transparent regulatory framework if the SEC is compelled to adapt its internal procedures. The SEC's own record of imposing over $1 billion in fines on financial firms for record-keeping violations during Gensler's tenure highlights a perceived double standard, as emphasized by Coinbase Chief Legal Officer Paul Grewal.

Expert Commentary

Paul Grewal, Coinbase's Chief Legal Officer, publicly stated, "The Gensler SEC destroyed documents they were required to preserve and produce. We now have proof from the SEC's own Inspector General." He further remarked, "This creates a profound 'do as I say, not as I do' problem that severely undermines the SEC's moral authority." Legal representatives for Coinbase, including History Associates, have also raised concerns that approximately 40 additional senior SEC officials face an ongoing risk of similar text message loss due to systemic backup failures within the agency. Rishabh Gupta commented that if sanctions are imposed, it would "create a legal precedent" that allows defendants to challenge not only the SEC's theories but also its "credibility and thoroughness" in handling evidence.

Broader Context

The SEC's Office of Inspector General report identified systemic failures beyond Gensler's device, including an untested auto-wipe policy, inadequate backup systems, and ignored warnings. The report made five recommendations to prevent future occurrences, focusing on stricter mobile device management, improved log monitoring, and enhanced approval processes for device resets. In response, the SEC has disabled texting on most staff devices and committed to adopting the Inspector General's proposed changes, including tighter backup protocols for senior officials. This controversy underscores broader implications for how regulatory agencies manage digital records and uphold transparency, particularly within the rapidly evolving Web3 ecosystem. The incident raises crucial questions about the reliability of government record-keeping and its potential to influence public perception and regulatory outcomes.