SEC Mistake Deletes Text Messages of Former Chair Gensler from Crucial Cryptocurrency Era

The Office of Inspector General (OIG) has revealed that Chair Gary Gensler's text messages from August 2023 were lost due to errors by the Securities and Exchange Commission's (SEC) IT department. The lost texts, which cover major events such as the FTX collapse, the Grayscale Bitcoin ETF lawsuit, and other crypto enforcement actions, have raised concerns over potential evidence destruction relevant to pending litigation.

Approximately 38% of the conversations were "mission related" and directly involved senior staff and commissioners, as well as core SEC business. The OIG determined that some of the recovered texts touched on sensitive SEC matters, including actions against crypto platforms and their founders, settlement talks with major financial institutions, and high-level exchanges with the White House.

The SEC's IT department mistakenly wiped Chair Gensler's government phone, marking it as inactive. However, the department did not keep important log data, leaving the agency and its contractors unable to explain why Gensler's phone stopped connecting to the SEC's system and triggered the wipe.

The Inspector General has warned that the missing records may affect the SEC's ability to respond to certain Freedom of Information Act requests. Nate Geraci, president of NovaDius Wealth Management, called the situation "serious."

In response, the SEC has disabled texting on most agency devices, alerted the National Archives about the lost information, launched Capstone records training for senior officials, and upgraded backup systems. Coinbase Chief Legal Officer Paul Grewal pointed out the irony of the SEC's data preservation issue during a pivotal period in crypto regulation.

Investigators examined about 1,500 texts obtained from colleagues and other sources. Most of the texts obtained met the definition of federal records. It is important to note that there is no publicly available information indicating any person representing SEC Chair Gary Gensler on his government smartphone after the loss of important log data since August 2023.

The SEC was also charged with failing to preserve communications on unauthorized messaging apps like WhatsApp and Signal, in violation of the 1934 Securities Exchange Act. Major investment banks and financial institutions, including JPMorgan, Goldman Sachs, and Citigroup, were among those charged.

The situation underscores the importance of proper data preservation and the potential consequences of its lack. As the SEC continues to navigate the complex world of crypto regulation, this incident serves as a reminder of the challenges that lie ahead.