Coinbase Faces Scrutiny Amid Regulatory Investigation
In a troubling turn for Coinbase, the U.S. Securities and Exchange Commission (SEC) is investigating whether the cryptocurrency exchange inflated its user numbers in prior disclosures. This announcement comes as the company grapples with the fallout from a major cybersecurity breach that has sent its stock tumbling.
SEC Investigation Details
On Thursday, Coinbase confirmed that the SEC is looking into potential discrepancies in the reporting of “verified users,” a metric the company has touted as exceeding 100 million in various communications. This investigation, initially launched during the Biden administration, has gained traction under the current SEC, which has shown a relatively lenient approach to the cryptocurrency sector.
“This is an ongoing investigation from the previous administration regarding a metric we stopped communicating about two and a half years ago and has been fully disclosed to the public,” stated Paul Grewal, Coinbase’s chief legal officer, in a statement to CNBC. He further explained that the verified user count includes anyone who completed an email or phone number verification, which may have led to an overestimation of unique customers.
“While we firmly believe this investigation should not continue, we remain committed to cooperating with the SEC to resolve this matter,” Grewal added.
Cyber Attack Adds to Market Pressure
The regulatory scrutiny coincides with the company’s struggles following a cybersecurity breach that was revealed earlier the same day. Hackers reportedly stole customer data and demanded a ransom of $20 million, prompting Coinbase to estimate the incident could cost the company up to $400 million.
This series of events adds to a volatile period for the exchange, which recently announced its inclusion in the S&P 500 index starting next week and disclosed plans to acquire the cryptocurrency derivatives platform Deribit as part of its global expansion strategy.
During a recent earnings call, CEO Brian Armstrong expressed ambitions to transform Coinbase into the “number one financial services app in the world” within the next five to ten years, as the company continues to hold its position as the largest crypto platform in the United States.
