The U.S. Securities and Exchange Commission (SEC) is continuing its investigation into Coinbase (COIN) regarding whether the crypto exchange misstated the number of its users in previous securities filings and marketing materials. The probe, which started under the previous presidential administration when Gary Gensler was SEC Chair, persists despite a shift to a more crypto-friendly SEC leadership under Paul Atkins.
The central issue is Coinbase's claim to have over 100 million "verified users," a metric prominently featured in its 2021 IPO filing. Coinbase stopped using this verified user metric in 2021 after recognizing it could overstate unique users, as it included anyone who verified an email address or phone number, potentially counting multiple accounts per individual.
Paul Grewal, Coinbase’s Chief Legal Officer, described the investigation as a "hold-over" from the prior administration and noted the metric has not been reported publicly for over two years. He emphasized the company continues to disclose more reliable data like "monthly transacting users".
The SEC has yet to comment on the probe publicly. Coinbase’s stock experienced a 6.6% decline on the day the investigation news broke, exacerbating bearish sentiment after the company also disclosed a significant data breach that might cost up to $400 million.
Despite the investigation, Coinbase has gained institutional stature, recently being added to the S&P 500 index. CEO Brian Armstrong remains a prominent figure in Washington crypto circles, having participated in a White House crypto summit. Meanwhile, Coinbase is collaborating with the law firm Davis Polk & Wardwell to address the SEC inquiry, seeking closure of the case.