Coinbase drops 7% on customer breach, SEC probe into user numbers

Coinbase experienced a significant stock decline following revelations of a data breach and an ongoing Securities and Exchange Commission (SEC) investigation. On May 15th, COIN stock dropped 7%, closing at $244 in after-hours trading, according to Google Finance. This downturn reflects investor concerns stemming from a double blow of negative news.

The SEC investigation centers on allegations that Coinbase misrepresented its user numbers in past disclosures, a probe initiated during the Biden administration and continuing under the Trump administration. Coinbase’s chief legal officer, Paul Grewal, confirmed the investigation to Cointelegraph, emphasizing that the metric in question (“100+ million verified users”) was discontinued in 2022 and that a more relevant metric, “monthly transacting users,” is now reported. Despite ceasing reporting this metric, and fully disclosing its discontinuation, the SEC investigation persists. Coinbase maintains it is cooperating with the SEC to resolve the matter and has engaged Davis Polk & Wardwell to assist. This investigation continues despite the SEC’s decision to drop a 2023 enforcement lawsuit against Coinbase under the Trump administration.

Simultaneously, Coinbase disclosed a significant cybersecurity incident involving a $20 million extortion attempt. Cybercriminals, employing compromised internal support agents, stole data from a subset of customer accounts. Coinbase refused to pay the ransom but committed to reimbursing affected users, anticipating remediation and reimbursement costs between $180 million and $400 million. The company’s resolute stance against paying ransoms underscores its commitment to security, even at a substantial financial cost. This incident, coupled with the SEC investigation, created a perfect storm of negative publicity impacting investor confidence and leading to the substantial stock price drop. The dual challenges highlight the vulnerabilities and regulatory scrutiny facing major cryptocurrency exchanges.