Unveiling the SEC’s IT Mishap: A Setback in Crypto Oversight
The U.S. Securities and Exchange Commission (SEC) is facing criticism after a comprehensive report exposed several preventable errors by its IT department. These blunders resulted in the loss of significant records related to crypto enforcement actions under the leadership of Gary Gensler.
The IT Blunder: Loss of Gensler’s Crucial Text Messages
The SEC’s Office of Inspector General (OIG) recently released a detailed report highlighting the actions of the Office of Information Technology (OIT) that led to the disappearance of former SEC Chairman Gary Gensler’s text messages from 2022 to 2023. According to the report dated September 3, the OIT executed an automated, poorly understood policy in August 2023, resulting in an “enterprise wipe” of Gensler’s government-issued mobile device.
Advertisement Banner
Alarmingly, Gensler’s device was mistakenly marked as inactive and had not been backed up for nearly a year. The OIT conducted a hasty factory reset, erasing text messages and operating system logs from October 18, 2022, to September 6, 2023. This situation was exacerbated by further OIT missteps, including deficiencies and missed opportunities, a lack of backups, and failure to adhere to record retention requirements for key officials like Gensler.
The regulatory body endeavored to recover or recreate the lost messages but failed to retrieve the entire dataset, including some essential federal records. The review revealed that approximately 38% of the recovered conversations were mission-critical, involving discussions with senior SEC staff and Commissioners, classifying them as records.
Among the retrieved messages, a notable exchange from May 2023 involved Gensler, his team, and the Director of the Division of Enforcement discussing impending actions against various crypto asset trading platforms and their founders.
Crypto Community Reacts to SEC Leadership’s Oversight
On Thursday, prominent figures from the crypto industry voiced their concerns about the previous SEC administration’s oversight and its consequences. Nate Geraci, chairman and president of The ETF Store, remarked, “Consider everything that happened in crypto during this period—essentially from the FTX collapse through the Grayscale spot BTC ETF lawsuit. It certainly gives one pause.”
Many highlighted the overlap between the period of the deleted texts and “Operation Chokepoint 2.0,” a series of SEC enforcement actions against multiple crypto exchanges. This period also saw the release of the SEC’s Staff Accounting Bulletin No. 121 (SAB 121) and anti-crypto measures from other regulatory bodies.
In a series of posts, Coinbase Chief Legal Officer Paul Grewal criticized the previous leadership for its apparent hypocrisy, stating, “After all the lectures on data preservation, this isn’t merely an ‘oops’ moment; it’s the destruction of evidence pertinent to ongoing litigation.” The OIG report underscored that losing the former chairman’s messages might affect the SEC’s responses to certain Freedom of Information Act (FOIA) requests.
In March, Coinbase filed a FOIA request to determine the costs the SEC incurred on crypto-related enforcement actions. The exchange sought documentation supporting the agency’s budget and performance reports, information on employees and contractors involved in these investigations, and insights into the SEC’s “Crypto Assets and Cyber Unit” within the Enforcement Division.
“We all deserve better, particularly from ‘leaders’ who readily criticize others and cast aspersions,” Grewal concluded.
Upholding Editorial Standards at Bitcoinist
At Bitcoinist, our Editorial Process is dedicated to providing well-researched, accurate, and unbiased content. We adhere to stringent sourcing standards, and each piece undergoes meticulous review by our team of top technology experts and seasoned editors. This rigorous process ensures our content’s integrity, relevance, and value for our readers.
