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A recent investigation by the Securities and Exchange Commission's Office of Inspector General (OIG) has revealed that nearly a year's worth of text messages from former SEC Chair Gary Gensler were permanently lost between October 2022 and September 2023. The loss, attributed to "avoidable errors" by the agency's IT department, occurred during a critical period of the SEC's intensified crypto enforcement actions.
Key Takeaways
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"Avoidable errors" led to the permanent loss of nearly a year of Gary Gensler's text messages.
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The lost communications included details about SEC enforcement actions against crypto companies.
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The SEC's IT department implemented a poorly understood automated policy that wiped Gensler's government-issued device.
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Poor change management, lack of backups, ignored alerts, and unaddressed software flaws exacerbated the data loss.
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The SEC has since disabled text messaging on most devices and is improving record-keeping practices.
Mishandled Data and Crypto Enforcement
The OIG report detailed how the SEC's IT department's "poorly understood and automated policy" resulted in an enterprise wipe of Gensler's government-issued mobile device, deleting stored text messages and operating system logs. This data loss was compounded by issues such as poor change management, inadequate backups, ignored system alerts, and unaddressed vendor software flaws. The IT department's failure to collect or maintain necessary log data prevented the commission from determining why Gensler's smartphone ceased communicating with the SEC's mobile device management system.
Impact on Transparency and Litigation
The lost text messages are significant because they included key communications related to the SEC's enforcement actions against crypto companies and their founders. This means that crucial details about the timing and methods of these enforcement actions may never be fully known to courts, Congress, or the public. Investigators recovered approximately 1,500 messages from colleagues and other records, determining that about 38% of these were "mission related." These included conversations about when the SEC planned to file actions against certain crypto asset trading platforms and their founders.
SEC's Response and Broader Implications
Coinciding with the loss of Gensler's messages, the SEC had been cracking down on the use of messaging apps by financial institutions, charging several with violating record-keeping laws. Critics, such as Coinbase's Chief Legal Officer Paul Grewal, have alleged that the deletion constituted "destruction of evidence relevant to pending litigation." The SEC has since taken steps to address the issue, including disabling text messaging on most devices, notifying the National Archives and Records Administration of the lost records, implementing new records training for senior officials, and improving backup practices for senior officials' devices. The loss of these messages could potentially impact the SEC's responses to Freedom of Information Act requests.
Sources
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SEC Report Faults Errors For Loss Of Gensler’s Texts, Cointelegraph.
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SEC Wiped Gensler’s Phone, Loses Trove of Texts Due to 'Avoidable' Errors, Law.com.
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