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The Securities and Exchange Commission’s (SEC) recordkeeping practices came under fire recently, as the SEC was forced to pay Coinbase $150,000 over deleted texts from Gary Gensler’s official phone.
Coinbase has settled its long-term battle with the agency, and now points fingers at how the regulators handled its former chair’s text messages.
Why did Coinbase sue the SEC in the first place?
The fight started when Coinbase requested records in 2023 relating to how the SEC was managing crypto oversight. However, the SEC did not comply with the request, and as a result, Coinbase decided to take them to court.
But the lawsuit was just one part of Coinbase’s campaign, as the exchange also sued the Federal Deposit Insurance Corporation along with the SEC, claiming that the requested records would expose a joint effort on the part of the regulators to maintain the gap between the crypto industry and the banking industry.
What actually happened to Gensler’s texts?
According to the SEC’s Office of Inspector General, Gensler’s government-issued phone stopped syncing with the agency’s device management system on July 6, 2023. Even though he used the phone regularly for 62 days, he and no one at the SEC office noticed the phone had been flagged as inactive.
Then, on August 10, 2023, the agency’s IT office released new policies that automatically wipe devices that go 45 days without connecting to the system, assuming those devices are missing or stolen.
Oblivious to the new rule, Glenser found out his SEC apps were missing. When staff tried to help him recover them, they ended up erasing everything permanently, including a year’s worth of messages, spanning from October 18, 2022, to September 2023.
The inspector general called the issue “avoidable,” stating that it was caused by missed alerts, poor coordination with the device vendor, and the lack of any recent backup. However, investigators were still able to recover around 1,500 related texts from other officials’ devices, stating that about 38% of those conversations were “mission-related,” focusing on things like the timing of enforcement actions against crypto trading platforms.
What is the SEC changing as part of the deal?
To atone for its mistakes, the SEC has decided to pay $150,000 to Coinbase, but the commission isn’t stopping there. Grewal, the chief legal officer of Coinbase, wrote that the settlement also requires the SEC to change its record-retention policies, erasing automatic device wiping for senior staff, which aligns with steps the agency began taking after the inspector general’s report came out in September 2025.
The SEC also disabled text messaging on most government devices, informed the National Archives about the lost records, and committed to five reforms recommended by the watchdog, which include needing management approval before any future factory resets.
The irony in this battle lies in the fact that over the years, the SEC has fined several Wall Street firms billions of dollars for not preserving employee communications, then failed to uphold such standards with its own former chair’s phone.
Grewal has made that double standard a focal point, stating that the agency insisted “everybody should play by the same rules,” but made the same mistake they preach.
The settlement comes as the SEC keeps trying to avoid fights with Coinbase, with acting Chair Mark Uyeda dismissing the agency’s main case against the exchange in February 2025, and Paul Atkins taking over the SEC as its confirmed chair.
Meanwhile, Grewal, who has been at the forefront of these battles, is moving into an advisory role at the end of July, signaling an end to his tenure.
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