Coinbase Confirms Long-Running SEC Probe Into User Verification Still Active

• Coinbase has a pending legal battle with the SEC regarding inflated user count.
• The exchange has overhauled its active user reporting metric to reflect actual traffic.

Coinbase Global Inc., the largest US crypto exchange, confirmed that a long-running probe from the Securities and Exchange Commission (SEC) is still active. The investigation, which began under President Joe Biden’s administration, focuses on the number of “verified users” reported by the company.

Coinbase and SEC Battle Not Yet Over

Coinbase disclosed in a New York Times article that the US SEC is still investigating whether it misrepresented the number of users on its platform. The investigation continued after the SEC dropped a lawsuit accusing Coinbase of illegally marketing digital currencies to the public.

In 2023, the SEC charged Coinbase with violating federal securities laws. However, the agency dropped the lawsuit after President Trump’s inauguration. Still, the closure of that case is not the end of the company’s legal troubles.

Coinbase Chief Legal Officer Paul Grewal confirmed with CNBC that the SEC is still investigating whether the trading platform misstated its user numbers in past disclosures. According to the New York Times report, Coinbase claimed it has over 100 million users in various securities filings and marketing materials.

“This is a holdover investigation from the prior administration about a metric we stopped reporting two and a half years ago, which was fully disclosed to the public,” Grewal noted. He explained that the verified users metric includes anyone who verified their email address or phone number with the firm. According to Grewal, this may have overestimated the number of unique customers.

Grewal added that Coinbase has since shifted to reporting “monthly transacting users,” a metric still disclosed in its earnings reports. He further stated that Coinbase is working with the SEC to close the ongoing investigation.

The inquiry unfolds shortly after the exchange revealed a security breach involving stolen customer information. As previously mentioned in our report, the attackers demanded a $20 million ransom. Coinbase said the incident could cost up to $400 million to address, but assured affected users of reimbursement.

Shift in SEC Tough Crypto Stance

Intriguingly, the SEC has taken a more friendly posture on crypto under President Donald Trump’s new administration. 

As featured in our recent coverage, the agency has dropped its lawsuit against MetaMask and ConsenSys. This decision reflects a broader shift in the SEC’s regulatory approach compared to its predecessor’s tough stance.

The new US SEC administration also moved to issue a joint motion with Binance to stay its case for 60 days. As summarized in our earlier news story, the case is expected to take a new twist. Both parties could “issue a joint status report” to observe whether the case could continue.

In a more bold move, the SEC recently invited Coinbase, Uniswap, and Cumberland to a crypto roundtable for deeper industry insight. Beyond exploring regulatory challenges, the parties delved into DeFi transparency and token classification.