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

A federal judge encouraged Coinbase to drop – or at least substantially modify – its efforts to subpoena U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler’s personal communications during a hearing Thursday.

Judge Katherine Polk Failla, of the District Court for the Southern District of New York, scheduled a hearing on short notice Thursday after SEC attorneys asked her to block a Coinbase subpoena last month directed at Gensler. The judge said she was "actually quite surprised by the request" made to Gensler in his personal capacity at the start of the hearing. Near the end, after both parties had explained their arguments, she indicated she still believed Coinbase's request was inappropriate but asked the exchange to file a motion to compel for a formal proceeding where both parties can brief their arguments more in depth.

"I imagined that there was something I was missing," she said at the outset. "Let me note that counsel on both sides is very smart, very clever, they’re all very clever people…but I was kind of surprised and not in a good way. I found the arguments at least as articulated in the July 3rd response to border on the fatuous."

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

The judge took specific issue with Coinbase requesting documents from Gensler predating his term as chair of the regulatory agency. Kevin Schwartz, an attorney with Wachtell, Lipton, Rosen & Katz representing Coinbase, said the agency has refused to even discuss the totality of the documents Coinbase might have, but that Gensler's communications were relevant to the case.

Jorge Tenreiro, an SEC senior trial attorney, said Gensler's communications before he became chair of the agency were not relevant to the case, adding that the SEC chair is neither a fact nor expert witness in the case and could set a concerning precedent in future cases.

Near the end of the hearing, the judge told Schwartz that she had "strong views" on the value of Gensler's statements from before he took the reins at the federal agency and that she was still leaning toward the SEC's view that the requests were inappropriate.

Still, the judge asked the two parties to get together and work on a briefing schedule, suggesting that rather than working off of the SEC's motion to quash, she'd like Coinbase to file a motion to compel and work through the process that way.

Coinbase subpoena

The crypto exchange initially served the SEC with requests for the production of documents in April. In June, Coinbase told the SEC that it also planned to subpoena SEC Chair Gary Gensler’s personal communications related to crypto over the course of his tenure, plus four years before he was appointed Chairman.

In a letter to the court on June 28, the SEC pushed back, calling the subpoena request an "improper intrusion" into Gensler’s private life and arguing that any subpoena should be directed at the SEC, not at individual employees of the agency.

"Given also the utter lack of relevance of the requested documents, and the potential chilling effect on public service, the Court should quash the Subpoena and issue a protective order," lawyers for the SEC argued.

Coinbase's Schwartz, during Thursday's hearing, said the SEC's charges included conduct from before Gensler was chair, though Tenreiro responded that the charges are specific to Coinbase's conduct and not Gensler's communications as a private citizen.

Fair game?

In their July 3 response to the SEC’s letter to the court, lawyers for Coinbase argued that it is fair game to subpoena Gensler’s personal communications because he is "not only the most prominent regulator, but also the most vocal academic commentator, concerning the regulatory status of digital assets and exchanges," and often speaks publicly while expressing that his views are his personal views, not that of the SEC.

"What Mr. Gensler was saying in his private communications about the regulatory status of digital assets, and what market participants were saying to him about these matters, is probative of the objective understanding of the public and market participants regarding what conduct the securities laws prohibit," Coinbase’s lawyers wrote. "[A] document or communication need not be public to provide insight into the public's objective understanding as to what regulators require of them: agency personnel’s communications with market participants and interagency correspondence are all 'relevant to the fair notice defense.'"