FDIC Faces Lawsuit Over Omitted Crypto-Related Documents

Highlights:

• The lawsuit filed by History Associates accuses FDIC of failing to disclose over 150 documents on crypto operations to banks.
• Coinbase has accused the agency limited the search for key letters tied to crypto activities.
• The FDIC has sued 17 former Silicon Valley Bank executives and directors over gross negligence and breaches of fiduciary duty.

History Associates has sued the US Federal Deposit Insurance Corporation for withholding critical documents. The accusation centers around “pause letters” that banks were sent telling them to cease crypto operations. The lawsuit was filed by History Associates to address what it claimed was a gap in the agency’s response to a Freedom of Information Act (FOIA) request.

The U.S. Federal Deposit Insurance Corporation (FDIC) is accused in a Freedom of Information Act (FOIA) lawsuit backed by Coinbase of omitting multiple cryptocurrency-related "hold letters" sent to banks. History Associates noted in a Jan. 17 report filed in federal court in…

— Mini Lab (@Minilaboratory) January 20, 2025

The firm claims that the FDIC may not have disclosed additional pause letters at all. History Associates alleges that whistleblower allegations indicate deliberate agency failings in responding to FOIA requests. The omissions reportedly include 150 or more documents that were not disclosed.

The FDIC had previously provided 25 letters in response to the FOIA request. These letters reportedly advised financial institutions to stop crypto activities during regulatory reviews. The crypto industry has criticized these actions as part of “Operation Chokepoint 2.0.” This alleged effort sought to cut off banking services for crypto-related firms.

Coinbase Claims Gaps in Regulatory Letters Released by Agency

Coinbase joined the legal effort to push for transparency in the FDIC’s handling of these documents. Coinbase’s Chief Legal Officer Paul Grewal has criticized the agency’s limited search for pause letters. He claims the FDIC focused only on documents listed in a specific Inspector General report. 

Grewal argues this search excluded other potentially relevant letters. When Coinbase requested a broader search, the FDIC said the process would take at least a year.

The FDIC, however, defended its actions, saying it had responded to the FOIA request. It added that it searched extensively for documents between March 2022 and May 2023. It also claims there is no basis to believe other letters exist outside this period. However, the FDIC acknowledged reviewing requests for documents outside these parameters. The agency has stated it will review these requests on an expedited basis. FDIC faces the lawsuit amid leadership changes at the agency following the resignation of chairman Martin Gruenberg.

Oversight Faces Growing Legal and Political Pressure

Lawmakers such as Wyoming Senator Cynthia Lummis have weighed in on the controversy. Lummis warned the FDIC in a letter that if the obstruction allegations turn out to be true, she could file criminal referrals. She stressed the need for transparency and accountability in regulatory disciplines. Pro-crypto lawyer John Deaton has offered to lead the probe into Operation Chokepoint 2.0.

Senator Cynthia Lummis has accused the FDIC of potentially destroying documents linked to "Operation Chokepoint 2.0," an alleged effort to pressure banks to sever ties with crypto firms.

She demands a halt to document destruction, highlighting the need for transparency. Details:… pic.twitter.com/2lDUeGIphK

— CryptoTvplus (@Cryptotvplus) January 19, 2025

Coinbase CEO Brian Armstrong initially submitted a FOIA request in 2022. The request sought information on the FDIC’s letters to banks advising them to halt crypto activities. Armstrong later received heavily redacted versions of the letters, which raised concerns.

In response, Judge Ana Reyes ordered the FDIC to provide clearer documents. Coinbase then hired History Associates to submit another FOIA request, which was denied. The denial prompted the current lawsuit. Meanwhile, the FDIC has sued 17 former Silicon Valley Bank executives and directors. The lawsuit seeks to recover billions of dollars related to the bank’s March 2023 collapse.

The FDIC is suing 17 former executives at Silicon Valley Bank for presiding over the bank’s abrupt collapse, which ranks as the third largest bank failure in U.S. history. — @kevinbtruong https://t.co/CPfC1pPfs7

— The San Francisco Standard (@sfstandard) January 19, 2025

The FDIC has accused the bank leadership of gross negligence and breaches of fiduciary duty. It contends that risk policies were overlooked by the executives, and they pursued short-term profits. The agency also criticized a $294 million dividend payment made when the agency was in a financial hole.