Coinbase to pay $6.5 million settlement ordered by CFTC

Digital currency exchange Coinbase Inc. is set to pay a civil monetary penalty of $6.5 million following the Commodity Futures Trading Commissions’ decision to issue an order which settled and filed charges against the company as mentioned above. The order was issued due to official findings of wash trading by a former Coinbase employee, as well as inaccurate or misleading reporting. On top of the $6.5 million fees, Coinbase will be required to cease and desist from all additional breaches of CFTC regulations or the Commodity Exchange Act, as charged.

Coinbase is said to have recklessly provided false, misleading, or inaccurate reports concerning transactions in digital assets between January 2015 and September 2018. These reports were issued on the GDAX electronic trading platform operated by Coinbase and included bitcoin.

Throughout this period, Coinbase operated two automated trading programs: Replicator and Hedger. These programs produced orders which would occasionally match one another, often resulting in trades between accounts owned by Coinbase itself. While GDAX Trading Rules specifically revealed that Coinbase was trading on GDAX, it failed to disclose that it was trading via several different accounts and running more than one trading program.

CFTC fine

Reporting firms, including Crypto Facilities Ltd and CoinMarketCap OpCo, LLC, gained access to Coinbase’s transactional information through its Application Programming Interface. At the same time, the NYSE Bitcoin Index received it directly in transmissions from Coinbase. The order found that this may have resulted in a misleading, inaccurate, or false perceived volume and liquidity level of digital assets, including Bitcoin.

The order also found that throughout the six-weeks (between August and September 2016), a former Coinbase employee generated a misleading perception of trading interest and liquidity in Litecoin. The former employee, it is reported, had used a deceptive or manipulative device by deliberately placing buy and sell orders in the Litecoin/Bitcoin trading pair on GDAX. These orders matched each other as wash trades. Coinbase was subsequently found to be liable as a principal for the employee’s conduct.

Vincent McGonagle, Acting Director of Enforcement, 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.

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