Coinbase To Pay $6.5 Million Fine To CFTC Over Old Trading Irregularities

Table of Contents

• A Price To Be Paid
• Coinbase Indulged In Wash Trading
• CFTC Says Coinbase Liable For Former Employee’s Conduct
• No Customers Were Harmed By The Wash Trades

The Commodity Futures Trading Commission (CFTC) has issued an order filing and settling charges against Coinbase, the digital asset exchange operator based in San Francisco, California. 

Coinbase has been accused of reckless false, misleading, or inaccurate reporting as well as wash trading by a former employee on Coinbase’s GDAX platform.

Bitcoin on-chain analyst Willy Woo (@Woonomic) tweeted the press release by the CFTC saying,

“Coinbase is the latest to be sued by the CFTC. Anyone noticing BTC getting easier to trade ever since the CFTC went on the warpath to clean up crypto exchanges?”

A Price To Be Paid

As per the order, Coinbase has to pay a civil monetary penalty of $6.5 million; it must also cease and desist from any further violations of the Commodity Exchange Act or CFTC regulations, as charged.

The CFTC released a press statement in which the Acting Director of Enforcement, Vincent McGonagle, said,

“Reporting false, misleading, or inaccurate transaction information undermines the integrity of digital asset pricing. This enforcement action sends the message that the Commission will act to safeguard the integrity and transparency of such information.”

Coinbase Indulged In Wash Trading

During the period between January 2015 and September 2018, Coinbase operated two automated trading programs, Hedger and Replicator. The two trading programs generated orders that at times matched with each other. 

GDAX Trading Rules disclose that Coinbase was trading on GDAX. However, nothing mentioned Coinbase trading through multiple accounts and operating more than one trading program. According to a report by the U.S. Treasury Department and several financial regulators in 2014, self-trading is when “the same entity takes both sides of the trade.” 

This type of market trading is known as “wash trading,” and it creates a false appearance of trading volume. 

Coinbase published this data based on the perceived volume of the assets, including bitcoin, on their website which reporting firms further published that market participants depended on.

CFTC Says Coinbase Liable For Former Employee’s Conduct

For a six-week period, between August through September 2016, a now-former employee of Coinbase wash traded some amount of litecoin. A manipulative or deceptive device was intentionally placed to buy and sell litecoin/bitcoin trading pairs that matched each other’s wash trades. 

This added to the misleading appearance of liquidity and trading interest in litecoin. Coinbase is the principal for the former employee’s conduct is charged with secondary liabilities. In a concurring statement published with the settlement, CFTC Commissioner Dawn Stump further added, 

“The settled charges are based largely on conduct that is several years old, has not been repeated, and in the case of the charge of secondary liability, is based on conduct by an employee who left Coinbase years ago and who is not being charged.”

No Customers Were Harmed By The Wash Trades

The CFTC maintains that no Coinbase customers were harmed or that any wrongdoing occurred. Rather, it describes the activity as reckless and unintentional and that Coinbase is not indulging in the activity anymore. The enforcement action does not impact any of Coinbase’s derivatives. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.