Coinbase’s challenges were intensified by the SEC investigation, which, along with a recent security breach, contributed to a 6% decline in the company’s share price.
An investigation is being conducted by the U.S. Securities and Exchange Commission (SEC) to assess whether the number of users on Coinbase’s platform was misrepresented.
The news was confirmed by Coinbase on May 15, following the publication of a New York Times article that disclosed the investigation and reported its continuation since the Biden administration.
A 6% decline in Coinbase’s share price was triggered by the report, coupled with the exchange’s disclosure of a recent scam incident attributed to internal security breaches.
Scrutiny Over Verified User Metrics
It was disclosed by the exchange that its previously reported “verified users” metric—featured in company filings and promotional content and once exceeding 100 million—is currently under investigation by the SEC.
A statement was issued to CNBC by Coinbase Chief Legal Officer Paul Grewal, in which he stated:
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.
It was explained by him that the now-discontinued metric included users who had verified either an email address or phone number, which may have led to an inflated count of unique customers.
It was further noted by Grewal that Coinbase has transitioned to reporting “monthly transacting users,” a metric that continues to be included in its earnings reports, and that efforts are being made by the company to cooperate with the SEC in bringing the investigation to a close.
Leadership Changes at the SEC
The inquiry is taking place during a leadership transition at the SEC under President Donald Trump’s administration, which has been recognized for adopting a more favorable stance toward cryptocurrency compared to the previous administration.
However, the ongoing nature of the investigation indicates that regulatory scrutiny over the disclosures and public data of crypto firms is being maintained.
The company’s difficulties were further intensified when a security breach involving stolen customer data and a $20 million ransom demand was disclosed. It was stated by Coinbase that the incident might result in costs reaching $400 million, thereby heightening investor concerns.
Significant progress has been made by Coinbase in recent weeks despite the setbacks. An acquisition intended to enhance its international footprint was announced by the exchange, which is also scheduled to be included in the S&P 500 index next week.
During the company’s recent first-quarter earnings call, it was stated by CEO Brian Armstrong that the goal is to transform Coinbase into “the No. 1 financial services app in the world” within a timeframe of five to ten years.
