Cryptocurrency exchange Coinbase Global Inc. has been fined $6.5 million by the U.S. Commodity Future Trading Commision to settle allegations that it undertook reckless false, misleading or inaccurate reporting as well as so-called wash trading between 2015 and 2018.
Along with the fine, announced Friday, Coinbase is also subject to stop any further violations of the Commodity Exchange Act or CFTC regulations.
Between January 2015 and September 2018, Coinbase is said to have operated two automated trading programs, Hedger and Replicator, that generated orders that at times matched one another on the GDAX electronic trading platform operated by the company. Although the GDAX rules did disclose that Coinbase was trading on the GDAX it failed to disclose that Coinbase was operating more than one trading program and trading through multiple accounts.
The problem is that in operating multiple programs and accounts, Coinbase was essentially creating trades between itself that then boosted trading volume and could have misled traders about the real volume on the exchange, which today is known as Coinbase Pro.
The boosted trading data from Coinbase was also then fed to third-party reporting services such as the CME Bitcoin Real Time Index, CoinMarketCap and the NYSE Bitcoin Index. According to the order, “transactional information of this type is used by market participants for price discovery related to trading or owning digital assets and potentially resulted in a perceived volume and level of liquidity of digital assets, including bitcoin, that was false, misleading or inaccurate.”
From August to September 2016, the CTFC also found, a former Coinbase employee used a “manipulative or deceptive device” by intentionally trading in Litecoin/bitcoin pairs on GDAX that matched each other as “wash trades,” creating a misleading appearance of liquidity in Litecoin. Wash trading is a form of market manipulation where an investor simultaneously sells and buys the same financial instruments to create artificial activity in the marketplace.
As part of the order, Coinbase itself has not admitted or denied the CFTC’s charges. A spokesperson for the exchange told The Verge Saturday that the settlement order “does not include any finding of harm to any Coinbase customer.”
The fine from the CTFC comes ahead of Coinbase’s plans to go public. After first announcing that it had filed a draft registration for an initial public offer in December, Coinbase said it had decided to go public via a direct listing Jan. 28 instead.
Image: Coinbase
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