SEC’s Own Mistakes Wiped Out Gensler’s Critical Texts

The Securities and Exchange Commission’s (SEC) Office of Inspector General (OIG) has released a report identifying “avoidable errors” as the cause of the permanent loss of nearly a year’s worth of text messages from former Chair Gary Gensler’s government-issued mobile device between October 2022 and September 2023. According to the report, the SEC’s Office of Information Technology implemented a poorly understood and automated “45-day wipe” policy that triggered an enterprise wipe of Gensler’s phone on September 6, 2023. This action occurred after the device had not been backed up since October 18, 2022, rendering the messages unrecoverable [1].

The OIG further highlighted systemic failures that contributed to the data loss, including poor change management, a lack of proper backups, ignored system alerts, and insufficient coordination with the vendor over known technical issues [1]. These shortcomings were compounded by the absence of necessary log data, which prevented the SEC from determining why Gensler’s device had stopped communicating with the agency’s mobile device management system in July 2023 [2]. The report concluded that these errors were entirely avoidable and placed responsibility on the agency’s IT department for the oversight [1].

The lost messages were not trivial in nature; investigators recovered approximately 1,500 messages from colleagues and other records, finding that the majority were federal records. Around 38% of the recovered text conversations were deemed “mission-related,” involving substantive discussions among senior officials. These included a May 2023 exchange between Gensler, his staff, and the Director of the Division of Enforcement regarding the timing of SEC enforcement actions against crypto asset trading platforms and their founders [1]. Given the context of the SEC’s heightened focus on crypto enforcement during this period, the loss of these communications has raised concerns about transparency and accountability in the agency’s decision-making process [2].

In response, the SEC has taken several measures to prevent future incidents. It has disabled text messaging on most government-issued devices, notified the National Archives and Records Administration of the lost records, and introduced Capstone-specific records training for senior officials. The agency also began improving backup practices for senior officials’ devices [1]. The OIG recommended five reforms, including stronger oversight of device wipes, improved log retention, verification of backups, and requiring management approval before factory resets [2]. These reforms are expected to be fully implemented by early 2026, according to the report [2].

The incident has drawn attention from outside experts and industry observers. Nate Geraci, President of NovaDius Wealth Management, emphasized the significance of the lost messages by referencing the volatile crypto landscape during Gensler’s tenure, including the FTX collapse and the Grayscale spot BTC ETF lawsuit. Similarly, Caitlin Long, founder of Custodia Bank, quipped about the irretrievability of Gensler’s messages in a “mysterious ‘boating accident’” [1]. These comments reflect broader skepticism about the SEC’s ability to enforce regulatory standards while maintaining internal compliance. The agency has defended its actions, with an SEC spokesperson stating that the current Chairman, Paul Atkins, has directed a comprehensive review of the situation and emphasized the importance of transparency [2].

The loss of Gensler’s texts may also impact the SEC’s ability to respond to Freedom of Information Act (FOIA) requests and could complicate future investigations or legal proceedings involving the agency’s decision-making process. While the OIG did not allege misconduct by Gensler himself, the report underscores the irony of the SEC’s regulatory focus on industry recordkeeping at the same time it failed to uphold its own standards. This incident serves as a cautionary tale about the critical need for robust internal controls and the potential consequences of their absence [2].

Source:

[1] Cointelegraph (https://cointelegraph.com/news/avoidable-errors-led-to-the-loss-of-gary-gensler-text-messages-sec)

[2] Washington Examiner (https://www.washingtonexaminer.com/policy/finance-and-economy/3794004/sec-loses-trove-gary-gensler-texts-avoidable-errors-watchdog/)