Judge Sends Coinbase Back to the Drawing Board Over Efforts to Subpoena SEC’s Gary Gensler

As a crypto investor following the latest developments in the industry, I was surprised to learn that Judge Katherine Polk Failla of the Southern District of New York’s District Court unexpectedly scheduled a hearing on short notice after SEC attorneys requested an emergency order to block a subpoena issued to Coinbase directed at its CEO, Brian Armstrong (formerly known as Gensler). During the hearing’s opening, I was taken aback when Judge Failla expressed her surprise upon learning about this personal request made to Gensler at the beginning of the proceedings.

At the beginning, I had a feeling that there was more to consider. Let me clarify that both counsels are highly intelligent individuals. However, I was taken aback and not in a positive manner. The arguments presented in the July 3rd response struck me as lacking substance.

“I was not moved by basically any of the arguments,” she said.

The judge raised concerns over Coinbase’s demand for documents from Gary Gensler, then-Chair of the regulatory agency, prior to his tenure. According to Kevin Schwartz, an attorney representing Coinbase at Wachtell, Lipton, Rosen & Katz, the agency has declined to engage in a comprehensive discussion regarding the documents in question. However, Schwartz argued that Gensler’s communications were essential for understanding the context of the case.

Jorge Tenreiro, a senior trial attorney at the Securities and Exchange Commission (SEC), stated that Gensler’s communications prior to his appointment as SEC chairman hold no relevance to the ongoing case. Furthermore, he emphasized that Gensler, serving as the chair, does not function as a fact or expert witness in the case. His involvement could potentially establish an unsettling precedent for future legal proceedings.

As a crypto investor, I listened intently as the judge expressed her firm convictions regarding the significance of Gary Gensler’s previous statements prior to his appointment at the Securities and Exchange Commission (SEC). She remained inclined towards the SEC’s stance that the requests were unwarranted.

Despite her request, the judge urged the two parties to collaborate on creating a briefing schedule. Instead of basing their efforts on the SEC’s motion to dismiss, she proposed that Coinbase should submit a motion to compel discovery and proceed with the ensuing process.

Coinbase subpoena

Back in April, the cryptocurrency exchange made a move by submitting document requests to the Securities and Exchange Commission (SEC). Later in June, Coinbase disclosed its intention to issue subpoenas towards SEC Chair Gary Gensler’s personal communications regarding crypto matters during his tenure, as well as the four preceding years.

In my analysis as a legal expert, I would express it this way: In a letter penned on June 28th, I contended before the court that the subpoena, aimed at me personally, constituted an unwarranted invasion into my private sphere. Furthermore, I advocated that any subpoena should be issued to the SEC itself rather than its employees.

Lawyers for the SEC contended that since the requested documents hold no bearing on the case at hand, and may inhibit public service, the Court ought to revoke the Subpoena and grant a protective order instead.

During Thursday’s hearing, Coinbase’s Schwartz stated that some of the SEC’s accusations pertained to actions taken before Gensler assumed his role as chair. However, Tenreiro countered that the SEC’s allegations solely concerned Coinbase’s behavior and not Gensler’s past communications as a private citizen.

Fair game?

In our July 3rd court submission in response to the SEC’s letter, we, Coinbase’s legal team, contend that it is acceptable for us to access Chairman Gensler’s personal communications because he is not just a prominent regulator but also an active academic commentator on digital assets and exchanges. He frequently shares his perspectives publicly, emphasizing that they represent his own views rather than the SEC’s position.

In simpler terms, Coinbase’s legal team argues that Mr. Gensler’s private communications with market participants about the regulatory status of digital assets, as well as what market participants shared with him, provide valuable information regarding the public’s understanding of what is prohibited by securities laws. Private documents or communications do not have to be made public to impact the general public’s comprehension; communications between regulators and market participants, along with internal correspondence, are all considered relevant when determining whether the regulatory requirements were clear enough (fair notice defense).