SEC investigating whether Coinbase misstated its user numbers

Not long after President Donald 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 SEC 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 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 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 SEC 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 SEC 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 SEC'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 SEC to bring this matter to a close," Grewal said.

The SEC has a long-standing 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.

It's not unusual for the SEC 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.