S.E.C. Investigating Whether Coinbase Misstated Its User Numbers

In the early days of President Trump’s administration, Coinbase, the largest cryptocurrency exchange in the United States, received some positive news. The Securities and Exchange Commission (SEC) announced it was dropping a lawsuit that had accused the company of unlawfully marketing digital assets to the public.

However, this may not mark the end of Coinbase’s legal challenges.

The SEC is also reportedly investigating whether Coinbase misrepresented its user numbers in previous disclosures—a probe that began under the Biden administration and has persisted through the Trump administration, according to four individuals familiar with the matter.

The investigation, which has not been previously disclosed, centers on a specific metric that Coinbase highlighted in securities filings and promotional materials, claiming that the platform had more than 100 million ‘verified users.’ According to sources, this data point appeared in Coinbase’s 2021 initial public offering (IPO) documentation but was dropped from public reports two years later.

Throughout this year, Coinbase has remained in communication with the SEC, two individuals with knowledge of the matter said. The company has enlisted the law firm Davis Polk & Wardwell to assist in addressing the inquiry.

An SEC spokesperson declined to comment on whether an investigation is ongoing.

Paul Grewal, Coinbase’s chief legal officer, characterized the inquiry as a ‘leftover investigation from the previous administration concerning a metric we ceased reporting over two years ago.’ He added, ‘While we believe this investigation should not continue, we remain dedicated to working with the SEC to resolve it.’

The investigation highlights that regulatory scrutiny of the cryptocurrency sector is still ongoing in Washington, even as the SEC has mostly disbanded its specialized crypto unit.

Since President Trump took office, the SEC has dismissed more than a dozen lawsuits and investigations targeting cryptocurrency firms, including the 2023 case against Coinbase. The agency’s new chair, Paul Atkins, is widely regarded as a crypto advocate, and Trump himself has financial interests in several cryptocurrency ventures.

Nevertheless, the SEC maintains a mandate to ensure that public companies do not make misleading statements in regulatory filings that could potentially mislead investors. In recent months, SEC officials have reportedly contacted former Coinbase employees seeking information regarding the ‘verified user’ statistic, according to sources familiar with the inquiry.

Coinbase, a publicly traded entity valued at over $60 billion, operates a marketplace for trading digital assets like Bitcoin and Ether. This week, the company was added to the S&P 500, signaling its growing influence in the financial sector and increasing interest from institutional investors.

However, on Thursday, Coinbase disclosed a data breach that exposed customers’ private information, a security incident that could cost the company as much as $400 million, as stated in a public filing.

Coinbase has positioned itself as a key player in the cryptocurrency sector, particularly in challenging Gary Gensler, the SEC chair during the Biden administration, who argued that most digital assets should be classified and regulated as securities.

In 2023, the SEC filed a lawsuit against Coinbase, accusing it of violating federal securities law by operating as an unregistered broker and facilitating the trade of digital assets that the SEC deemed to be securities. Coinbase refuted these allegations, arguing that the SEC’s regulatory stance was misguided.

Following the lawsuit, Brian Armstrong, Coinbase’s CEO, criticized the SEC’s ‘regulation-by-enforcement’ approach, arguing that it was detrimental to the U.S. crypto industry. Over time, Armstrong became increasingly vocal against the agency, with Coinbase investing millions in the 2024 elections to support candidates who advocated for more favorable crypto regulations.

Since Trump’s return to office, Coinbase’s relationship with Washington has improved. Armstrong even attended a White House summit on cryptocurrency in March, sitting just a few seats away from the president.

Despite these developments, the company’s unresolved issues with the SEC persist.

Before going public in 2021, Coinbase included the ‘verified user’ figure in a regulatory filing, stating it had recorded 43 million verified users the previous year. In a 2022 social media post, Armstrong claimed that the number had grown to 103 million, a figure that was also referenced in YouTube videos and regulatory filings.

However, Coinbase acknowledged in its 2023 securities filings that the ‘verified user’ metric may have overstated the number of unique customers, as some users could open multiple accounts using different email addresses or phone numbers.

In a subsequent filing, Coinbase stated that it would no longer report the verified user number, asserting that it was ‘no longer indicative of our overall performance’ and did not provide valuable insight into the company’s business performance. Instead, Coinbase has shifted to emphasizing ‘monthly transacting users’ — a metric that tracks the number of active users in a given month.

It remains unclear precisely when the SEC’s investigation into the ‘verified user’ metric began, though it reportedly started while Gensler was still leading the agency. While some SEC probes conclude without enforcement actions, especially if companies are found not to have intentionally misled investors, Coinbase’s legal battle with the SEC remains far from resolved.