Coinbase Under SEC Investigation For Overstatement Of User Numbers

The U.S. Securities and Exchange Commission is investigating whether Coinbase Global Inc. COIN, the largest U.S.-based cryptocurrency exchange, misrepresented its user numbers in past disclosures. 

The Details: According to a Thursday report from the New York Times, the SEC's probe centers on the crypto exchange's claim of having over 100 million "verified users," a figure prominently featured in its 2021 initial public offering documents and marketing materials. 

According to Coinbase, the "verified users" number included anyone who confirmed an email address or phone number, which could result in the same individual being counted multiple times and potentially inflate the number of unique customers. The company stopped reporting its verified users metric in 2022.

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Coinbase has been in touch with the SEC over the past year and has hired the law firm Davis Polk & Wardwell in connection with the investigation, according to people familiar with the matter. The sources also said the SEC has questioned former Coinbase employees about the issue. 

The company's chief legal officer, Paul Grewal described the investigation as "a holdover from the prior administration about a metric we stopped reporting two and a half years ago, which was fully disclosed to the public." 

"While we strongly believe this investigation should not continue, we remain committed to working with the SEC to bring this matter to a close," Grewal said in the statement, per the New York Times.

What Else: Coinbase on Thursday disclosed a cyberattack that included a $20 million ransom demand from the attackers who obtained internal documentation and personal user data, including names, contact details, masked bank and SSN data and government IDs.

Coinbase CEO Brian Armstrong addressed the incident publicly, saying, “We are not going to pay your ransom… Instead, we’re putting out a $20 million award for any information leading to the arrest and conviction of these attackers.”

The stock is preparing to join the S&P 500 index on Monday as the first pure-play crypto company included in the index. 

COIN Price Action: Coinbase shares have gained more than 50% over the past month and were up 7.52% at $262.82 at the time of publication Friday. 

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