Long SEC Reviews Quarterly Update # 6
Long SEC reviews reflect ongoing regulatory concerns over a company’s financial disclosures or accounting practices, signaling potential risks or uncertainties to investors.
What are SEC comments, and why are they important?
The SEC Corp Fin Staff routinely reviews filings of public companies, such as 10-Ks and 8-Ks, to ensure companies are meeting disclosure and accounting requirements. As required by the Sarbanes-Oxley Act of 2002, Corp Fin initiates some level of review of each reporting company at least once every three years and a significant number of companies are reviewed more frequently. If the SEC spots inconsistencies with GAAP or disclosure ambiguities, it issues comment letters requesting clarification or changes in accounting or disclosure, typically expecting companies to respond within ten business days.
While most comment letter exchanges are resolved within 40–60 days, some persist for much longer, suggesting that potentially more complex issues are involved. Academic research often uses the volume and duration of these comment exchanges to assess the seriousness of regulatory concerns (Cunningham and Leidner, 2022).
Long or contentious comment letter exchanges may reveal significant disagreements over accounting treatments, and even when resolved in favor of the company, can highlight potential risks or adjustments that affect financial metrics.
Analysis for this quarterly update identified two NYSE and Nasdaq companies with SEC comment letter reviews that extended over at least 180 days and were publicly released during the quarter ended June 30, 2025.
I’ve discussed SEC comments to Custom Truck One Source, Inc. (Ticker: CTOS) in my previous update. Selected SEC comments to Coinbase Global, Inc. (Ticker: COIN) are discussed below.
Coinbase Global, Inc. (COIN)
The SEC issued comments to Coinbase on September 22, 2023, seeking clarity on a wide range of disclosure, accounting, and compliance topics. The first comment letter in the conversation included 53 distinct comments – comparable to the 55 comments in the initial letter of SEC’s review of Coinbase’s IPO prospectus in October 2020, and about twice the average IPO 20-25 comments for all companies.
The issues included Coinbase’s relationship and governing agreement with Circle Internet Financial, user engagement practices, staking programs, custodial risks, geographic disclosures, and the accuracy of risk factor language. The Staff also sought enhanced detail on Coinbase’s financial reporting, including revenue disaggregation, expense transparency, critical accounting estimates, market risk sensitivity, and use of non-GAAP measures. Other key topics included segment reporting justification, revenue recognition from staking and USDC arrangements, crypto asset holdings and impairment, collateral rights in lending programs, and potential liabilities under safeguarding obligations.
The conversation continued over 529 days — beginning more than one year before the November 2024 Presidential election to a closing letter five months after the election on March 17, 2025 — and included 12 back-and-forth letters. Additional characteristics of the conversation included requests for extensions of time to respond and for confidential treatment, as well as a large lag between the first and second round of comments.
I’ve discussed SEC comments on Coinbase’s non-GAAP metrics in my collaboration post with Francine McKenna of The Dig:
“As predicted by us and by Market Watch, on October 18, 2024, the SEC issued comments to Coinbase, questioning, among other things, two distinct types of crypto-related adjustments:
The adjustment that removes the impact of pre-ASU 2023-08 impairments of crypto assets because stripping out normal, recurring, operating adjustments is misleading and violates Question 100.01 of the SEC’s C&DIs.
The adjustment that removes gain on crypto assets held for investment, net (post-adoption of ASU 2023-08) because this adjustment reverses the impact of adoption of ASU 2023-08, creating a tailored accounting measure prohibited by Question 100.04 of Regulation G.”
While I won’t go through all 53 comments in the SEC’s letter to Coinbase, let me highlight a few that proved especially thorny. For example, the SEC issued comments over three separate rounds regarding Coinbase’s updated agreement with Circle, questioning both the materiality of the agreement and the company’s accounting treatment of related revenue.
Comments on Coinbase’s and Circle’s revenue-sharing agreement
On August 18, 2023, Coinbase exchanged its 50% interest in the joint partnership with Circle, Centre Consortium LLC, for a 3.5% equity interest in Circle, and disclosed the transaction in a footnote to its quarterly report for the period ending September 30, 2023, filed on November 2, 2023:
“Equity method investments
The Company acquired a 50% interest in Centre Consortium LLC (“Centre”) during August 2019. The Company had significant influence over the entity, but did not have power or control. The investment was included in other under other non-current assets in the table within this Note. On August 18, 2023, the Company entered into a share transfer agreement to exchange its 50% interest in Centre to its joint venture partner, Circle US Holdings, Inc., for 3.5% of the fully diluted equity of Circle Internet Financial Limited at an estimated fair value of $51.1 million, which is included in strategic investments in the table within this Note.
The Company recorded a gain of $49.9 million, which is included in other (income) expense, net in the condensed consolidated statement of operations for the three and nine months ended September 30, 2023. In connection with this transaction, the Centre joint venture was terminated.”
The SEC issued comments over three rounds (comments 1, 24, and 1), questioning whether Coinbase’s agreement with Circle should be filed as a material contract under Item 601(b)(10) of Regulation S-K. In its initial response, Coinbase argued the agreement was not material because it was part of the company’s ordinary revenue-generating activities, and the company was not substantially dependent on it. However, the SEC pushed back, citing that the agreement accounted for 23.7% of total revenue in the first half of 2023 and asked Coinbase to reconsider both Item 601(b)(10)(i) (materiality) and (ii) (ordinary course exceptions).
In response, Coinbase reiterated that the Circle Agreement was not material and should be considered an ordinary course contract, asserting that its business model involves diverse and fluctuating revenue sources and that it has similar arrangements with other stablecoin providers. The company also pointed out that while Circle contributed 22% of revenue in 2023, this figure dropped to 12% in Q1 2024, illustrating the volatility and lack of sustained reliance. The SEC also raised a related point about Coinbase’s equity interest in Circle, asking whether the 3.5% ownership stake affects the materiality analysis considerations. Coinbase maintained that the equity transaction was separate from the commercial revenue-sharing arrangement and immaterial in size (just 0.02% of assets).
Finally, the SEC asked whether Coinbase could find comparable providers offering similar terms and volumes, to which the company responded that it had non-exclusive partnerships with multiple stablecoin issuers—some offering both revenue-sharing and equity components—and noted that USDT now surpasses USDC in trading volume on its platform.
“The Company advises the Staff that the Company does not have an exclusive relationship with Circle and has entered into partnerships with other stablecoin issuers, certain of which similarly involve both revenue sharing and equity investments. There is an increasing number of, and increasing volumes of, stablecoins other than USDC. For example, USDT currently has a larger market capitalization than USDC, and the issuer of USDT has recently self-reported that it has 330 million onchain wallets and accounts. The Company processes more volume in transactions in USDT than USDC on its platform, and USDT is one of the top crypto assets by trading volume on the Company’s platform, behind only Bitcoin and Ethereum, as disclosed in the Company’s Quarterly Report on Form 10-Q for the quarters ended June 30, 2024 (the “Q2 2024 Form 10-Q”) and September 30, 2024 (the “Q3 2024 Form 10-Q”). “
Thus, Coinbase concluded again that it was not substantially dependent on Circle and that filing the agreement was not required.
However, despite more than a year of back-and-forth and a detailed legal analysis explaining why Item 601 is not applicable, Coinbase did file the agreement with Circle as an exhibit to its annual report for the year ended December 31, 2024, filed February 13, 2025. (Note that the agreement is redacted to exclude information that Coinbase considers both immaterial and confidential.)
Why the sudden change of mind? The agreement with Circle was amended in November 2024, but the nature of the relationship did not appear to change. Quantitative considerations also align with Coinbase’s response to the SEC: the Company derived approximately $910 million of its $6,654 million in 2024 revenue, or about 14%, from stablecoins.
The answer could be that Circle decided to proceed with its IPO process. While the partnership agreement may be immaterial to Coinbase, it is likely to be material to Circle. Put it differently: Circle would have to – and did – disclose the terms of the August 18, 2023, collaboration agreement and filed the agreement as an exhibit to its S-1 prospectus.
Circle filed its initial confidential DRS prospectus on December 13, 2023, and became public more than a year later on June 4, 2025. The agreement with Coinbase was attached as an exhibit to DRS/A filing dated February 13, 2025.
All IPO prospectuses, including that of Circle, undergo a rigorous SEC review process, with comment letters typically released 20 business days after the IPO date. Circle’s comment letters related to its IPO are not yet available, although it has been more than 20 business days. We should be able to gain a better understanding of whether the agreement with Coinbase was one of the issues raised by the SEC once the SEC's comments to Circle are publicly available.
Here is another interesting question: Will the SEC also release comments related to the Circle’s earlier 2022 going public attempt that was terminated? My friend and frequent collaborator Francine McKenna discussed why comments related to a withdrawn IPO may never be available to investors:
“We may never see the comment letters — in normal circumstances they are posted 20 business days after the listing is effective — unless the SEC releases them in response to a FOIA request or leaks them. But Circle withdrew its registration, like WeWork, and there is no obligation for confidential comment letters to be posted publicly to SEC Edgar after a withdrawal.”
Notably, it is not uncommon for large public companies to avoid disclosing their partnership agreements, citing immateriality. For instance, Microsoft never filed its agreement with OpenAI as an exhibit, explaining to MarketWatch that the deal is immaterial to Microsoft:
“The critical term in disclosure-related decisions is materiality. Immaterial information does not need to be disclosed and, according to Microsoft’s comments to Jeremy Owens of the Market Watch in December 2023, the partnership was immaterial to Microsoft. (Legal experts, quoted by Market Watch, disagreed).”
Since OpenAI is private, we have no access to its financial information including material agreements and its audit information.
After the paywall, I discuss SEC comments to Coinbase related to the accounting treatment of stablecoin revenue and comments related to cyber insurance.