Not long after President Trump took office, Coinbase, the largest U.S. cryptocurrency exchange, got some good news: The Securities and Exchange Commission was dropping a lawsuit that had accused the company of illegally marketing digital currencies to the public.
But that case may not be the end of the company’s legal troubles.
The S.E.C. has also been investigating whether Coinbase misstated its user numbers in past disclosures — an inquiry that began during the Biden administration and has continued under Mr. Trump, according to four people familiar with it.
The investigation, which has not been previously reported, has focused on a metric that Coinbase included in securities filings and marketing materials, claiming that the company had more than 100 million “verified users,” said the people, who spoke on the condition of anonymity. The data point appeared in Coinbase’s original public offering document in 2021, but the company stopped citing it two years later.
Coinbase has been in touch with the S.E.C. over the course of this year, two people familiar with the inquiry said, and has hired the law firm Davis Polk & Wardwell to assist with its response.
A representative for the S.E.C. said the agency would not comment on “the existence or nonexistence of a possible investigation.”
Paul Grewal, Coinbase’s chief legal officer, said in a statement that the S.E.C.’s inquiry was “a holdover investigation from the prior administration about a metric we stopped reporting two and a half years ago.”
“While we strongly believe this investigation should not continue, we remain committed to working with the S.E.C. to bring this matter to a close,” Mr. Grewal said.
The investigation into Coinbase shows that enforcement efforts on the crypto world have not entirely ceased in Washington, even after the S.E.C. largely disbanded its specialized crypto unit.
Since Mr. Trump took office in January, the S.E.C. has dropped more than a dozen lawsuits and investigations targeting crypto firms, including the case it filed against Coinbase in 2023. The commission’s new chair, Paul Atkins, is widely regarded as a crypto advocate, and the president is involved in several crypto ventures himself.
But whatever the political environment in Washington, the S.E.C. has a longstanding mission to make sure that public companies do not include misleading statements in regulatory filings that could influence an investor’s decision-making process. Agency officials have contacted former Coinbase employees over the past few months, seeking information about the “verified user” figure, said the people familiar with the inquiry.
Coinbase, a publicly traded company worth more than $60 billion, offers a marketplace where people can buy digital currencies like Bitcoin and Ether. In a sign of its growing prominence, the company was added this week to the S&P 500, the most important index for measuring the broad performance of stocks traded in U.S. markets. The move indicates the growing acceptance of crypto companies on Wall Street and means that more mutual funds are likely to invest in Coinbase shares.
The company also revealed on Thursday that it had been the victim of a data breach that exposed customers’ private information. The incident could cost Coinbase as much as $400 million to resolve, according to a public filing.
Coinbase has long played a leadership role in the crypto world. The company was at the vanguard of the industry’s attacks on Gary Gensler, the S.E.C. chair during the Biden administration, who argued that nearly all digital assets should be regulated as securities, like the stocks and bonds traded on Wall Street.
In its 2023 lawsuit, the S.E.C. claimed that Coinbase violated federal securities law by failing to register as a broker and argued that some digital assets on its trading platform were securities that should be subject to strict regulation. Coinbase countered that it had done nothing wrong and that the S.E.C. was misguided in classifying cryptocurrencies as securities.
After the lawsuit was filed, Brian Armstrong, Coinbase’s chief executive, said the S.E.C. had “taken a regulation-by-enforcement approach that is harming America.”
Over the ensuing years, Mr. Armstrong became more outspoken in his attacks on the agency. Coinbase poured tens of millions of dollars into the 2024 elections, supporting congressional candidates who backed the crypto industry.
Since Mr. Trump’s return to office, Coinbase’s standing in Washington has been transformed. Mr. Armstrong sat three seats away from the president at a first-of-its-kind White House summit for the crypto industry in March.
But the company is still navigating its issues with the S.E.C.
Before it went public in 2021, Coinbase included the “verified user” number in a public filing, saying it had recorded 43 million of those users the previous year.
In a social media post in 2022, Mr. Armstrong said the company was up to 103 million verified users. He repeated the figure in a YouTube video that year, and the company cited it in securities filings.
But in those public filings, Coinbase included a caveat, saying the figure might “overstate the number of unique customers who have registered an account,” because the same person might open multiple accounts using different phone numbers or email addresses.
In a 2023 securities filing, Coinbase said it would no longer cite the figure in statements to investors. The number was “not indicative of our overall performance” and “no longer provides valuable insight into our business performance,” the company said.
Instead, the company has focused on a separate metric, which records “monthly transacting users” — the number of people who use the platform in a given month.
It’s not clear precisely when the S.E.C. began investigating Coinbase’s use of the “verified user” figure. But the inquiry started while Mr. Gensler still ran the agency, according to three people familiar with the investigation.
It’s not unusual for the S.E.C. to open an investigation after a company disavows a metric it had been promoting to investors. Often such inquiries end without any enforcement action, especially if regulators conclude that a company did not intend to deceive investors.
David Yaffe-Bellany writes about the crypto industry from New York. He can be reached at [email protected].
Matthew Goldstein is a Times reporter who covers Wall Street and white-collar crime and housing issues.
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