By
Steve Muchoki
April 19th, 2024
Major exchange Coinbase saw its stock rise markedly after it announced a settlement with a state financial services regulator.
Coinbase Global Inc (NASDAQ: COIN) stock jumped 12% Wednesday on news that it had reached a settlement with a New York regulator. According to reports, the leading American crypto exchange agreed to pay $100 million to the New York Department of Financial Services. 50% of this settlement constitutes the fine, while Coinbase will invest the remaining $50 million into strengthening its compliance programs.
Coinbase stock was trading at $37.34 per share following the settlement and end of the NYDFS probe, which it first revealed in 2021. The day before the stock rise, COIN had plunged 5% and was at an all-time low of $31.86 last week.
The NYDFS previously ruled that it discovered “significant failures” in Coinbase’s compliance. According to the New York regulator, the way the exchange reviewed customer identities and alerted on transactions fell short of industry standards. Coinbase had a reported backlog of 100,000 alerts on potentially questionable customer transactions. In addition, the NYDFS alleged that Coinbase failed to keep track of its customer base growth between 2020 and 2021.
In an issued statement, the New York Department of Financial Services commented on the development, saying:
“Coinbase has acknowledged its failures in this respect to the Department. Furthermore, certain of these issues have been known to Coinbase since at least 2018, flagged through both internal assessments and external reviews, including examinations conducted by the Department.”
The NYDFS also added that “although Coinbase has worked to correct these issues, its progress has been slow: progress in certain areas did not occur until recently, and work remains outstanding to the present.”
Coinbase CLO Comments Post NYDFS Settlement & Company Stock Development
Coinbase chief legal officer Paul Grewal also weighed in on the NYDFS’ comments. Grewal explained that although the exchange takes pride in its compliance commitment, it also acknowledges room for improvement. The Coinbase head lawyer further stated that the company is working hard to fix these issues. In a recent tweet, Grewal said:
“We’re proud of our commitment to compliance, but we are also willing to acknowledge where we have fallen short, including by paying penalties & working hard to fix issues.”
FRNT Financial CEO Stéphane Ouellette touched on Coinbase’s Settlement with the New York financial services regulator. According to him, this development is more about the NYDFS making its point and then moving on from the subject. The FRNT Financial CEO also cited a previous example to support his view: the NYAG suit against Bitfinex/Tether. Ouellette pointed out that following the subsequent settlement between both entities, Bitfinex/Tether has attracted little US-administrative attention. Instead, the regulatory focus appears to have shifted elsewhere.
Over & Done With
Coinbase’s latest stock jump could result from investors having a comprehensive take on regulatory matters linked to the exchange. The company first disclosed the NYDFS investigation as a potential risk to its operations in a 2021 Securities and Exchange Commission filing. However, yesterday’s settlement announcement finally brings the matter to a conclusion.