Coinbase drops 7% on customer breach, SEC probe into user numbers

Coinbase stock dipped after news broke of a cyberattack that exposed customer data and an ongoing Securities and Exchange Commission investigation over misstated user numbers in 2021.

The double whammy of bad news rattled investors as company stock (COIN) slid 7% in a fall to $244 in after-hours trading on May 15, according to Google Finance.  

Coinbase stock 24 hours. Source: Google Finance 

Coinbase has since confirmed the report from The New York Times, which stated the SEC has been investigating whether Coinbase misstated its user numbers in past disclosures, an inquiry that began during the Biden administration and has continued under the Trump administration.

“This 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,” confirmed Coinbase chief legal officer Paul Grewal to Cointelegraph. 

“We also disclosed – and continue to disclose – the more relevant metric of ‘monthly transacting users’ – the number of people who use our platform in a given month,” he said before adding: 

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

The regulator took specific umbrage at Coinbase’s claim of “100+ million verified users” that appeared in its marketing and IPO documentation in 2021. However, the exchange stopped reporting this metric in 2022.

In its 2022 financial statement, the firm stated it would stop reporting the metric as it no longer believed it provided meaningful information to its business performance. Source: SEC

The probe has continued despite the SEC dropping its 2023 enforcement lawsuit against Coinbase under the Trump administration. 

Coinbase has hired law firm Davis Polk & Wardwell to assist with its response to the SEC.

Coinbase refuses to pay ransom

On May 15, Coinbase reported that it was attacked with a $20 million extortion attempt after cybercriminals recruited overseas support agents to leak user data.

“These insiders abused their access to customer support systems to steal the account data for a small subset of customers,” the firm stated. 

Related: Coinbase to become the first crypto firm to join the S&P 500

Coinbase refused to pay the ransom but said it would reimburse victims of phishing attacks as a result of the data breach, with expected remediation and reimbursement expenses ranging from $180 million to $400 million.

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