The Criticism of Coinbase’s Subpoena Against SEC Chair Gary Gensler

Judge Katherine Polk Failla recently criticized Coinbase’s attempt to subpoena SEC chair Gary Gensler in the ongoing case against the firm. The criticism came during a July 11 hearing, where Failla raised concerns regarding Coinbase’s request for Gensler’s statements before he became SEC chair in 2021.

During the hearing, Failla pointed out that Coinbase’s request for Gensler’s earliest comments was based on the uncertainty of whether Gensler had used personal devices or email accounts to discuss crypto or communicate with market participants. Despite this explanation from Coinbase’s lawyer, Failla described the company’s arguments as speculative and lacking persuasion. She expressed skepticism about Coinbase’s ability to obtain Gensler’s pre-chair statements, indicating that the request presented challenges.

However, Failla also acknowledged Coinbase’s concerns, expressing her trouble if the company had faced resistance or obstruction in obtaining necessary information. She assured that she expects future motions from Coinbase and assured that she would be present during the proceedings.

SEC lawyer Jorge Tenreiro criticized Coinbase’s subpoena request as incredibly intrusive against a public official. He emphasized that the focus of the proceedings should be on the SEC’s actions rather than Gensler’s personal communications. Tenreiro argued that Gensler was neither a fact witness nor an expert witness on the law, urging the court to quash Coinbase’s subpoena request.

Coinbase’s lawyers referenced the SEC’s case against Ripple, where the court ordered the discovery of multiple custodians, including the then-SEC chair Jay Clayton. However, Tenreiro filed a response highlighting the SEC’s efforts to prohibit Ripple from obtaining certain information by searching SEC staff’s personal devices. The comparison underscored the differing approaches between the two cases.

In June, Coinbase requested documents and communications related to Gensler’s public comments on digital assets, platforms, and staking as a service. The request covered statements made between May 2021 and September 2023, along with Gensler’s pre-chair communications. Additionally, Coinbase submitted 33 other requests for documents and communications concerning the SEC, indicating the scope of its demands.

On June 28, the SEC filed a motion to quash the subpoena against Gensler in his personal capacity. Coinbase responded on July 3, arguing that Gensler’s personal communications were relevant to its defense, particularly in relation to the fair notice defense. Coinbase claimed that Gensler’s past statements could impact whether the company could have reasonably expected the SEC to take action against it.

The SEC initiated the lawsuit against Coinbase in June 2023, alleging that the firm operated as an unregistered exchange, broker, and clearing agency. The regulator also accused Coinbase of engaging in unregistered offerings and sales of securities through its staking-as-a-service offering. The lawsuit underscores the regulatory scrutiny faced by cryptocurrency companies in navigating compliance with securities laws.

The criticism of Coinbase’s subpoena against SEC chair Gary Gensler highlights the complexities and challenges involved in legal proceedings between regulatory agencies and companies in the cryptocurrency space. The differing perspectives of the judge and the SEC lawyer underscore the tensions around the scope of information requests and the relevance of personal communications in such cases. As the legal battle continues, it remains to be seen how the court will address the issues raised by both parties and the implications for the broader regulatory landscape in the cryptocurrency industry.