Elon Musk’s X, formerly Twitter, has filed a brief to the U.S. Supreme Court questioning the legality of sending “broad, suspicionless” requests for data to crypto exchanges such as Coinbase and other firms.
Many crypto exchanges have been hit by these types of requests, termed “John Doe” requests. And it’s not been limited to Coinbase: Competitor crypto exchange Kraken and USDC stablecoin issuer Circle received them in 2021.
The brief was filed in support of the case of James Harper, who has been locked in a legal battle with the IRS since 2020. Harper’s civil case objected to the IRS using a subpoena to obtain three years of transaction records concerning over 14,000 customers from cryptocurrency exchange Coinbase, including himself.
IRS Wants Kraken Customer Details, Judge Pushes Back
The Department of Justice, Tax Division, this week filed a court request to obtain information about customers of the San Francisco-based cryptocurrency exchange Kraken. The so-called John Doe summons, filed in the US District Court for the Northern District of California, asks Kraken to provide account details for all American taxpayers who have held at least $20,000 in cryptocurrency on the exchange at any point from 2016 to 2020. Judge Joseph Spero isn't ready to authorize the request, which...
The argument hinges on the U.S. Constitution’s Fourth Amendment, which protects individuals from unreasonable searches and seizures by the government, ensuring that warrants are issued only when the government can prove probable cause and provides specific details.
The X attorney’s brief, filed on Friday, asks whether these Fourth Amendment protections permit “warrantless searches of customer records held by third-party service providers if the records are contractually owned by the customer” and “if those records enable surveillance of future behavior.”
The brief says that “Mr. Harper’s contract with the exchange made clear that the records belonged to him and that the exchange would protect his privacy.”
In particular, the brief focuses on what is called the “third-party doctrine,” a legal precedent established in the 1970s that can enable these types of invasive data requests—as long as they are directed toward a third party, rather than a particular private individual.
DOJ, IRS Target Tax-Evading Clients of Crypto Broker SFOX
A California court has given the U.S. Internal Revenue Service permission to issue a “John Doe” summons to prime brokerage SFOX. If issued, the summons would seek both user identification and transaction records for anyone who completed at least $20,000 worth of transactions from 2016 through the end of 2021. In a memo about the SFOX summons, Hubbert wrote that IRS Agent Seng Lee has identified 10 different taxpayers believed to be SFOX customers who are suspected of skirting tax laws. Those ta...
For example, the application of the “third-party doctrine” could allow the government to access an individual's bank records, which they gave consent for the bank to access, without a warrant, but not papers stored in their home.
A decision by the Supreme Court in favor of Mr. Harper would bolster legal protections against data requests by all U.S. companies, outside of the crypto industry, including X. But the Supreme Court, the final court of appeal, has not yet agreed to hear James Harper’s case.
Though the outcome of the case could impact the fortunes of X, the third-party doctrine has had plenty of criticism from independent legal academics who think it is outdated in today’s digital age. There have also been judges who ruled against the third-party doctrine when it comes to accessing geolocation data from smartphones and smart home devices.
Edited by Stacy Elliott.
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