- The SEC is investigating Coinbase over its past reporting of “verified users”
- The exchange has acknowledged the investigation, stating the metric was discontinued over two years ago
- Coinbase asserts full disclosure was made and had expressed a commitment to cooperating with regulators
The U.S. Securities and Exchange Commission (SEC) has initiated an investigation into Coinbase’s historical reporting of its “verified users” metric, which the company used in its 2021 public offering documents. Coinbase has since ceased using this metric, citing its potential to overstate unique user numbers. The company maintains that it had fully disclosed the nature of this metric and is working with the SEC to resolve the matter.
SEC Scrutinizes “Verified Users” Metric
According to the New York Times, the SEC’s investigation centers on whether Coinbase overstated its user numbers by reporting over 100 million “verified users” in past filings and public statements, including its 2021 IPO documentation. This metric included individuals who had merely verified their email or phone number, potentially inflating the actual number of active users.
Coinbase discontinued the use of the “verified users” metric in 2023, shifting focus to “monthly transacting users” as a more accurate representation of active customers. The company has hired the law firm Davis Polk & Wardwell to manage its response to the SEC’s inquiry, illustrating the seriousness of the investigation.
Coinbase Blames Biden “Hold -Over”
Paul Grewal, Coinbase’s Chief Legal Officer, described the investigation as a “hold-over” from the previous administration, emphasizing that the metric in question had been fully disclosed to the public:
We explained that the verified users metric includes anyone who verified their email address or phone number with us, so it may overstate the number of unique customers. While we strongly believe this investigation should not continue, we remain committed to working with the SEC to bring this matter to a close.
The investigation adds to a series of regulatory challenges for Coinbase, which has faced scrutiny over its operations in the past. Earlier this year, the SEC dropped a lawsuit against the company that alleged it operated without the necessary registrations for trading cryptocurrencies, and the company will hope that the new crypto-friendly administration will look more favorably on it.
