The US Securities and Exchange Commission (SEC) is investigating Coinbase to determine whether it misrepresented the number of users on its platform.
Coinbase confirmed the news on May 15 after a New York Times article revealed the probe and reported that it had been ongoing since the Biden administration.
The report, combined with the exchange revealing details about a recent scam issue being caused by internal breaches, led to a 6% slide in its share price.
Verified users
The exchange disclosed that the SEC is investigating its previously reported “verified users” metric, a figure that has appeared in company filings and marketing material and once topped 100 million.
Coinbase Chief Legal Officer Paul Grewal said in a statement to CNBC:
“This is a holdover investigation from the prior administration about a metric we stopped reporting two and a half years ago, which was fully disclosed to the public.”
He explained that the now-retired metric counted users who verified an email or phone number, potentially overstating the number of unique customers.
Grewal added that Coinbase has since shifted to reporting “monthly transacting users,” a metric still disclosed in its earnings reports, and said the company is working with the SEC to close the investigation.
Shifts at the SEC
The inquiry is unfolding as the SEC undergoes a leadership shift under President Donald Trump’s administration, which has taken a more crypto-friendly posture compared to its predecessor.
However, the continuation of the probe suggests lingering regulatory scrutiny over crypto firms’ disclosures and public-facing data.
The company’s challenges deepened after it revealed a security breach involving stolen customer information and a $20 million ransom demand. Coinbase said the incident could cost up to $400 million to address, adding to investor concerns.
Despite the setbacks, Coinbase has made significant strides in recent weeks. The exchange announced an acquisition aimed at expanding its global presence and is set to enter the S&P 500 index next week.
During its recent first-quarter earnings call, CEO Brian Armstrong said the company intends to become “the No. 1 financial services app in the world” within five to ten years.
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