SEC Investigates Coinbase's User Metrics Ahead of 2021 IPO

The U.S. Securities and Exchange Commission is conducting an investigation into whether Coinbase inflated its user metrics ahead of its public debut in 2021. This inquiry focuses on the company's past disclosures, particularly its registration statement for the direct listing, which claimed the exchange had more than 100 million “verified users.” This figure was later removed from public reporting roughly two years after the initial claim.

The investigation began under the administration of President Joe Biden and has continued into the subsequent administration. Coinbase went public via direct listing on April 14, 2021, trading under the ticker COIN on the Nasdaq. Paul Grewal, Coinbase’s chief legal officer, stated that 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."

Grewal further emphasized that while Coinbase believes this investigation should not continue, the company remains committed to working with the SEC to resolve the matter. 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 announced it would begin disclosing “monthly transacting users” rather than the “verified users” statistic. The company argued that the former metric was “not indicative of our overall performance” and “no longer provides valuable insight into our business performance.” Grewal explained that the verified users metric includes anyone who verified their email address or phone number with Coinbase, which may overstate the number of unique customers. 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. This claim is now under scrutiny as part of the SEC's investigation. The news of the investigation follows Armstrong's public disclosure that the exchange had been hacked, leading to the theft of customer KYC information.