SEC investigates whether Coinbase inflated user numbers ahead of 2021 IPO

The U.S. Securities and Exchange Commission is investigating whether Coinbase misled investors by inflating its user metrics at the time of its public debut in 2021, an exchange representative told The Block. The New York Times was first to report the story. 

Citing anonymous sources, the Times said the SEC is reviewing the company’s past disclosures, including its registration statement for its direct listing, which claimed the exchange had more than 100 million “verified users.” That figure was quietly dropped from public reporting roughly two years later.

The inquiry reportedly began under President Joe Biden and has continued into the more industry-friendly administration of President Donald Trump. Coinbase went public via direct listing on April 14, 2021, trading under the ticker COIN on the Nasdaq. As of press time, the stock was down 6.6%, according to The Block’s data page. 

Paul Grewal, Coinbase’s chief legal officer, told The Block the agency’s inquiry 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."

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

Notably, the SEC dropped a separate lawsuit that alleged the exchange had operated as an unlicensed broker and clearing house. That case was dismissed amid a wave of reneged enforcement actions and investigations opened during Gary Gensler’s tenure as SEC chair.

In a 2023 securities filing, Coinbase said it would begin disclosing “monthly transacting users” rather than the “verified users” statistic, arguing that the former was “not indicative of our overall performance” and “no longer provides valuable insight into our business performance.” 

"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," Grewal said. According to the exchange's Form S-1 Registration Statement from Feb. 25, 2021, a "verified user" includes all retail users, institutions, and ecosystem partners that have registered a Coinbase account with either a phone number or email as well as non-custodial wallet users.

As recently as 2022, Coinbase CEO Brian Armstrong had claimed the exchange boasted up to 103 million verified users, making it the largest crypto trading platform in the U.S. 

News of the investigation follows Armstrong's public disclosure on Thursday that the exchange had been hacked, leading to the theft of customer KYC information. 

Editor's note: Updates story with additional context provided by Paul Grewal and a Coinbase representative.