SEC Under Scrutiny: Missing Messages During Crypto Crackdown Era

Gate’s Office of Inspector General (OIG) has released a report detailing a series of “avoidable” errors by the IT department, resulting in the loss of critical records related to cryptocurrency enforcement actions during a key period.

Technology Mishap Erases Executive Communications

The OIG’s September 3 report reveals that the Office of Information Technology (OIT) implemented a “poorly understood and automated policy” in August 2023, leading to an “enterprise wipe” of a high-ranking official’s government-issued mobile device.

The device, which had not been backed up for nearly a year, was mistakenly flagged as inactive. OIT personnel “hastily performed a factory reset,” erasing text messages and operating system logs stored on the device between October 18, 2022, and September 6, 2023.

This incident was exacerbated by “additional OIT actions, deficiencies, and missed opportunities, including a lack of backups and procedures that failed to consider record retention requirements for senior officials,” the report explained.

While efforts were made to recover or reconstruct the deleted messages, the agency was “unable to collect or determine the entire universe,” including some federal records. The review found that approximately 38% of the recovered text conversations were mission-related and concerned matters directly involving senior staff and/or Commissioners at the time, qualifying them as official records.

Among the recovered messages was a May 2023 conversation involving senior leadership and the Director of the Division of Enforcement regarding the timing of actions against certain cryptocurrency asset trading platforms and their founders.

Industry Voices React to Regulatory Misstep

On Thursday, cryptocurrency industry leaders and participants weighed in on the implications of this technological oversight. Nate Geraci, chairman and president of The ETF Store, remarked, “Consider everything that transpired in the crypto space during this period. Essentially from the FTX collapse through the spot bitcoin ETF lawsuit. It raises questions.”

Many noted that the timeframe of the deleted texts coincides with part of a significant regulatory enforcement initiative against multiple cryptocurrency exchanges, the release of an important staff accounting bulletin, and anti-crypto policies from other regulatory bodies.

In a social media post, a prominent legal officer criticized the apparent inconsistency, stating, “After all the lecturing about data preservation. All the admonishing. All the self-righteousness.”

The legal officer asserted that “this isn’t a mere ‘oops’ moment. This was a destruction of evidence relevant to pending litigation.” The OIG report acknowledged that the loss of these text messages may impact the agency’s ability to respond to certain Freedom of Information Act (FOIA) requests.

It’s noteworthy that a major cryptocurrency exchange submitted a FOIA request in March seeking information on the regulatory agency’s expenditures related to crypto-enforcement actions. As previously reported, the exchange sought documentation used to create current and past annual budget and performance reports.

Additionally, they inquired about the number of employees and third-party contractors involved in these investigations and enforcement actions, as well as details about the agency’s specialized cryptocurrency unit within the Enforcement Division.

“We all deserve better, especially from ‘leaders’ who readily criticize others and make accusations,” the legal officer concluded.

Disclaimer: This information is for educational purposes only. Past performance does not guarantee future results.