The SEC is investigating whether Coinbase misrepresented its user base during its 2021 public listing, potentially misleading investors.
Background
- The U.S. Securities and Exchange Commission is investigating whether Coinbase overstated user numbers ahead of its direct listing in April 2021.
- The probe centers on Coinbase's registration documents, which claimed over 100 million “verified users,” a figure later removed from public reports.
- Coinbase went public on April 14, 2021, under the ticker COIN, becoming the largest crypto exchange to list on a U.S. stock exchange.
- The investigation reportedly began under President Joe Biden’s administration and has continued under the more crypto-supportive leadership of President Donald Trump.
Why Should You Pay Attention?
- If Coinbase is found to have inflated user metrics, it could set a precedent for how crypto firms are scrutinized ahead of going public.
- The probe highlights growing regulatory focus on transparency and investor protection in crypto markets, especially as more digital asset companies pursue IPOs or public listings.
- Shares of Coinbase dipped 7.20% following the news, reflecting investor concern over regulatory uncertainty.
Who Said What?
- Paul Grewal, Chief Legal Officer at Coinbase said:
“This is a hold-over investigation from the prior administration about a metric we stopped reporting two and a half years ago… While we strongly believe this investigation should not continue, we remain committed to working with the SEC.”
- Grewal added that Coinbase had already disclosed that its “verified user” count included anyone who simply registered with an email or phone number, potentially overstating actual customer engagement.
- The company clarified in a 2023 filing that it would now focus on reporting “monthly transacting users” instead, saying the “verified users” metric no longer provided valuable insight.
Zooming Out
- The investigation comes amid a broader regulatory reset in Washington. Under SEC Chair Gary Gensler, several crypto enforcement actions were opened, many of which have now been dropped or scaled back.
- Coinbase recently won a separate legal battle after the SEC dropped its case alleging the firm operated as an unlicensed broker and clearing house.
- Still, scrutiny of Coinbase persists. The company disclosed just yesterday that it had suffered a hack targeting customer identity information.
- With the 2021 IPO still in focus, the outcome of this probe could shape disclosure practices for future crypto-related listings, especially in a post-ETF, pro-crypto regulatory climate.
