Coinbase Faces SEC Probe Over User Metrics, Costs May Reach $400M

Coinbase, a prominent cryptocurrency exchange, has confirmed that it is still under investigation by the US Securities and Exchange Commission (SEC) regarding its reporting of "verified users." The probe, which began during the Biden administration, focuses on whether the company misrepresented the number of users on its platform. This
came to light on May 15, following an article by the New York Times that detailed the ongoing investigation.The SEC's inquiry centers on a metric that
previously used to report the number of "verified users," a figure that once exceeded 100 million. This metric, which counted users who had verified their email or phone number, was discontinued by Coinbase over two and a half years ago. The company has since shifted to reporting "monthly transacting users," a metric that is still disclosed in its earnings reports. Coinbase's Chief Legal Officer, Paul Grewal, stated that the company is cooperating with the SEC to resolve the investigation.The investigation comes at a time when the SEC is undergoing a leadership transition under the Trump administration, which has adopted a more favorable stance towards cryptocurrencies compared to its predecessor. However, the continuation of the probe indicates that regulatory scrutiny over crypto firms' disclosures and public-facing data remains robust. This scrutiny has been further intensified by recent security breaches at Coinbase, which involved the theft of customer information and a $20 million ransom demand. The company estimates that addressing this incident could cost up to $400 million, adding to investor concerns.
Despite these challenges, Coinbase has made significant progress in recent weeks. The exchange announced an acquisition aimed at expanding its global presence and is set to join the S&P 500 index. During its first-quarter earnings call, CEO Brian Armstrong expressed the company's ambition to become "the No. 1 financial services app in the world" within the next five to ten years. This strategic vision underscores Coinbase's commitment to growth and innovation, even in the face of regulatory and security challenges.

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