Coinbase faces SEC probe over historical user metrics: report

Stock slips 6% after report on federal investigation.
The regulatory scrutiny comes as Coinbase deals with the aftermath of a cybersecurity breach disclosed earlier in the day.
Hackers reportedly stole customer data and are demanding a $20 million ransom.

Coinbase confirmed Thursday that the US Securities and Exchange Commission is investigating whether the company overstated user numbers in prior disclosures.

The development, first reported by The New York Times, contributed to a decline of about 6% in Coinbase shares during the session.

The inquiry centers on Coinbase’s reporting of “verified users,” a metric the company has cited in filings and promotional materials as totaling more than 100 million.

According to the report, the investigation originated during the Biden administration and has continued under the current SEC, which has taken a comparatively more accommodating stance toward the crypto industry.

“This is a hold-over investigation from the prior administration about a metric we stopped reporting two and a half years ago, which was fully disclosed to the public,” said Paul Grewal, Coinbase’s chief legal officer, in a statement to CNBC.

He added that the verified users figure included anyone who completed an email or phone number verification, which could have led to an overstatement of unique customers.

Grewal also emphasized that Coinbase now focuses on a different disclosure: monthly transacting users, a figure the company considers a more relevant indicator of platform activity.

“While we strongly believe this investigation should not continue, we remain committed to working with the SEC to bring this matter to a close,” he added.

Cyberattack adds to market pressure

The regulatory scrutiny comes as Coinbase deals with the aftermath of a cybersecurity breach disclosed earlier in the day.

Hackers reportedly stole customer data and are demanding a $20 million ransom.

Coinbase estimates the incident could cost the company up to $400 million.

The timing compounds an already volatile period for the company.

Coinbase recently announced its inclusion in the S&P 500 index, effective next week, and revealed plans to acquire crypto derivatives platform Deribit as part of its global expansion strategy.

Speaking on an earnings call last week, CEO Brian Armstrong said he aims to make Coinbase “the No. 1 financial services app in the world” within the next five to 10 years.

Coinbase currently operates the largest cryptocurrency exchange in the United States.