The US Securities and Exchange Commission (SEC) is under fire after a recent report detailed a series of “avoidable” mistakes from the watchdog’s IT department that resulted in the loss of records linked to crypto enforcement actions during Gary Gensler’s tenure.
IT ‘Oopsie’ Wipes Gensler’s Texts
The SEC’s Office of Inspector General (OIG) has shared the final report detailing the findings of its review of the Office of Information Technology’s (IOT) actions that led to the loss of former SEC Chairman Gary Gensler’s text messages between 2022 and 2023.
According to the September 3 report, the OIT implemented a “poorly understood and automated policy” in August 2023 that caused “an enterprise wipe of Gensler’s government-issued mobile device.”
Executive summary of IOG's report. Source: sec.gov
Seemingly, Gensler’s government-issued device was erroneously flagged as inactive and had not been backed up for nearly a year. OIT “hastily performed a factory reset,” which deleted text messages stored on the device and the device’s operating system logs between October 18, 2022, and September 6, 2023.
The incident was worsened after a series of “additional OIT actions, deficiencies, and missed opportunities, including a lack of backups and procedures that failed to consider record retention requirements for Capstone officials (such as Gensler),” the report explained.
The regulatory agency reportedly worked to recover or recreate the deleted text messages but was “unable to collect or determine the entire universe,” including some federal records. The review found that around 38% of the recovered text conversations were mission-related and concerned matters directly involving SEC senior staff and/or Commissioners at the time, making them records.
Among the recovered messages, the SEC retrieved a May 2023 conversation involving Gensler, his staff, and the Director of the Division of Enforcement about when the SEC would file an action against certain crypto asset trading platforms and their founders.
Crypto Leaders Call Out Prior SEC Leadership
On Thursday, crypto industry leaders and participants commented on the previous SEC leadership’s “mistake” and the implications. Nate Geraci, chairman and president of The ETF Store, stated, “Think about everything that happened in crypto during this time. Basically FTX collapse thru Grayscale spot btc ETF lawsuit. Makes you think.”
Many noted that the period of the deleted texts also overlaps with part of “Operation Chokepoint 2.0,” the SEC’s enforcement actions against multiple crypto exchanges, the release of the SEC’s Staff Accounting Bulletin No. 121 (SAB 121), and anti-crypto policies from other regulatory agencies.
In an X threat, Coinbase CLO Paul Grewal criticized the prior leadership for the apparent hypocrisy after “all the lecturing (…) about data preservation. All the haranguing. All the self-righteousness.”
The CLO affirmed that “this isn’t some ‘oops’ moment. This was a destruction of evidence relevant to pending litigation.” The IOG report noted that the loss of the former chairman’s text messages may impact the SEC’s response to certain Freedom of Information Act (FOIA) requests.
It’s worth noting that Coinbase submitted a FOIA request in March asking how much the regulatory agency had spent on crypto-related enforcement actions. As reported by Bitcoinist, the crypto exchange sought the supporting documentation used to create the current and past annual budget and performance reports.
Additionally, it inquired about the number of employees and third-party contractors who worked on these investigations and enforcement actions, and “know more about the previous SEC’s infamous ‘Crypto Assets and Cyber Unit’ within the Enforcement Division.”
“We all deserve better, especially from ‘leaders’ who see fit to smear others and cast aspersions so freely,” Grewal concluded.
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