SEC Probes Coinbase Over Alleged User Data Misrepresentation

Shortly after President Trump assumed office, Coinbase, the leading cryptocurrency exchange in the U.S., received news that the Securities and Exchange Commission had withdrawn a lawsuit accusing the company of illegally marketing digital currencies to consumers.

However, this development does not mark the end of Coinbase’s regulatory challenges.

The SEC is currently probing whether Coinbase misrepresented its user numbers in prior disclosures—a review that began during the Biden administration and has persisted into the current administration, according to several sources familiar with the matter.

This previously unreported investigation centers on a figure Coinbase promoted in its securities filings and marketing materials, claiming to have over 100 million “verified users.” This metric first appeared in Coinbase’s initial public offering documents in 2021 but was discontinued in company reports two years later.

Throughout this year, Coinbase has been cooperating with the SEC and enlisted the legal expertise of Davis Polk & Wardwell to assist in its response to the inquiry.

An SEC spokesperson declined to confirm or deny the existence of any investigation.

Paul Grewal, Coinbase’s chief legal officer, described the SEC’s inquiry as a “carryover investigation from the previous administration concerning a metric we ceased reporting over two years ago.”

He added, “While we firmly believe this inquiry should be concluded, we remain dedicated to working with the SEC to resolve this matter.”

This probe underscores that regulatory scrutiny of the cryptocurrency sector continues in Washington, despite the disbandment of the SEC’s specialized crypto enforcement unit.

Since January, the SEC has dropped numerous lawsuits and investigations targeting crypto companies, including its 2023 case against Coinbase. The commission’s current chair is seen as more supportive of the crypto industry, and the president himself has interests in crypto ventures.

Regardless of political shifts, the SEC’s core mission remains ensuring public companies avoid misleading statements in regulatory filings that might influence investor decisions. In recent months, agency officials have interviewed former Coinbase employees about the “verified user” figure.

Coinbase, a publicly traded company valued at over $60 billion, operates a marketplace for digital currencies such as Bitcoin and Ether. Its recent inclusion in the S&P 500 index signals increasing acceptance of cryptocurrency firms by Wall Street and is likely to attract more institutional investment.

Recently, Coinbase disclosed a data breach exposing private customer information, which could result in costs up to $400 million, according to a public filing.

As a prominent figure in the crypto sector, Coinbase has been a vocal critic of Gary Gensler, the SEC chair during the Biden administration, who advocated for most digital assets to be regulated as securities.

In its 2023 lawsuit, the SEC alleged that Coinbase violated securities laws by failing to register as a broker and contended that some assets on its platform should be classified as securities subject to stringent regulation. Coinbase denied wrongdoing and challenged the SEC’s classification of cryptocurrencies.

Following the lawsuit, Coinbase’s CEO Brian Armstrong criticized the SEC’s “regulation-by-enforcement” approach as harmful to the country.

Armstrong has since intensified his criticism of the agency, with Coinbase investing heavily in the 2024 elections to support congressional candidates favorable to the crypto industry.

Since President Trump’s return to office, Coinbase’s influence in Washington has improved considerably. Armstrong was notably seated close to the president during a pioneering White House summit focused on the crypto industry earlier this year.

Nonetheless, Coinbase continues to address ongoing matters with the SEC.

Before its public listing in 2021, Coinbase reported having 43 million verified users in a public filing, referencing users from the previous year.

In 2022, Armstrong announced on social media that the company’s verified user count had grown to 103 million. This figure was reiterated in a YouTube video and cited in securities documents.

However, Coinbase’s filings also noted that this number might overstate the count of unique users, as individuals could hold multiple accounts using different emails or phone numbers.

By 2023, Coinbase ceased referencing this metric in investor communications, stating it was “not indicative of overall performance” and no longer provided meaningful insight into business results.

The company has since emphasized a different measurement: “monthly transacting users,” representing active platform users each month.

The precise starting point of the SEC’s investigation into the verified user metric remains unclear, but it began while Gensler still headed the commission.

It is common for regulators to open inquiries after a company discontinues promoting a previously highlighted metric. Many such investigations conclude without enforcement action if no intent to mislead investors is found.