In a recent hearing, Judge Katherine Polk Failla criticized Coinbase’s efforts to subpoena Securities and Exchange Commission (SEC) Chairman Gary Gensler, calling their attempts both surprising and misguided.
Judge Failla’s Skepticism: A Blow to Coinbase’s Subpoena Efforts
Judge Failla, presiding over the District Court for the Southern District of New York, expressed her skepticism about Coinbase’s justification for the subpoena. She highlighted the irrelevance of the documents requested from before Gensler’s term and suggested that Coinbase modify or drop its request.
Legal Context and Arguments
In April, Coinbase initially requested documents from the SEC, later expanding the request to include Gensler’s personal communications from his tenure as SEC Chair and the four years prior. The SEC opposed this request, describing it as an “improper intrusion” into Gensler’s personal life. They argued that relevant documents should be sought from the agency itself, not from individual employees.
SEC’s Defense and Concerns
Jorge Tenreiro, a senior trial attorney for the SEC, argued that Gensler’s communications before his appointment as Chair were irrelevant to the case. He stressed that Gensler is neither a fact nor an expert witness in this matter and warned that granting such a subpoena could set a troubling precedent for future cases. The SEC lawyers contended that the requested documents’ lack of relevance and the potential chilling effect on public service warranted quashing the subpoena and issuing a protective order.
Coinbase’s Position
Kevin Schwartz, Coinbase’s attorney, maintained that Gensler’s communications were pertinent, especially those predating his chairmanship. He argued that Gensler’s role as a prominent commentator on digital assets and his public statements were relevant to understanding the regulatory context. Schwartz explained that Gensler’s private communications about the regulatory status of digital assets and interactions with market participants were probative of the public’s understanding of securities laws.
Judge Failla’s Response
Judge Failla was notably unimpressed by Coinbase’s rationale, describing the arguments as speculative and unconvincing. Despite this, she acknowledged that the SEC had stonewalled Coinbase and suggested the parties work together on a briefing schedule. She also advised Coinbase to file a motion to compel rather than continue with the current subpoena approach.
Ongoing Legal Battle
The legal battle between Coinbase and the SEC began in June 2023, when the SEC filed a lawsuit against Coinbase, alleging it operated as an unregistered exchange, broker, and clearing agency. The SEC also claims that Coinbase has been providing unregistered securities through its staking services. Additionally, the SEC has targeted several tokens listed on Coinbase’s platform, including Solana (SOL), Cardano (ADA), and Polygon (MATIC), alleging they are unregistered securities. Coinbase has denied these allegations, asserting that none of the assets on its platform qualify as securities.