The Commodity Futures Trading Commission (CFTC) has fined cryptocurrency exchange Coinbase $6.5 million for reckless lying, misrepresentation and money laundering. The enforcement action came as Coinbase prepares for its IPO on the Nasdaq.
CFTC takes action againstCoinbase
On Friday, the CFTC announced that it had issued an order accusing cryptocurrency exchange operator Coinbase Inc. of reckless misrepresentation and wash trading. The regulator wrote:
The order requires Coinbase to pay a $6.5 million civil penalty and refrain from further violations of the Commodity Exchange Act or CFTC regulations.
The ordinance states that between January 2015 and September 2018. Coinbase recklessly provided false, misleading or inaccurate reports of transactions of digital assets, including bitcoin, on its GDAX platform.
The CFTC noted that while Coinbase disclosed that it trades on the GDAX platform, it failed to disclose that it operates more than one trading program and trades through multiple accounts. The derivatives regulator found that during the period in question, the company used two automated trading programs, Hedger and Replicator, which sometimes generated overlapping orders.
In addition, the regulator said that while Hedger and Replicator had independent purposes, in practice the programs coordinated orders in certain trading pairs, resulting in transactions between accounts owned by Coinbase. Crypto Exchange has published information about these transactions on its website and has shared this information with news services including Crypto Facilities, Coinmarketcap and the NYSE Bitcoin Index. The TCRC has clarified this:
This type of transaction information is used by market participants to determine prices associated with trading or owning digital assets and may cause the estimated volume and liquidity level of digital assets, including bitcoin, to be false, misleading or inaccurate.
Litchcone/Bitcone whitewash by formeremployee.
In addition, the Enforcement Order found that between August and September 2016, a former Coinbase employee used a manipulative or deceptive device by intentionally placing buy and sell orders on GDAX in the Litecoin/Bitcoin trading pair that were matched as wash trades. The purchase order does not contain the employee’s name.
The CFTC found that on certain days, this employee laundered transactions in the Litecoin/Bitcoin pair between accounts he owned and controlled, and that these transactions represented a significant percentage of the contract’s trading volume, ranging from 0.62% to 99.0% of the daily trading volume. The TCRC explains:
This has created a misleading appearance of liquidity and commercial interest in Litecoin. Consequently, Monetabase, as the principal, is responsible for the conduct of this employee.
Litecoin founder Charlie Lee was director of engineering at Coinbase from July 2015 to June 2017. In December 2017, Lee reported that he had sold and donated all of his LFCs, with the exception of a few physical LFCs that he kept as collectibles.
Meanwhile, Coinbase is preparing for an IPO via a direct listing on Nasdaq, under the symbol COIN. However, according to Bloomberg, the IPO has been delayed until April. Coinbase filed this week to sell 114.9 million shares in its initial public offering. The company said Wednesday that recent transactions in the private market valued the company at about $68 billion, up from $100 billion.
What do you think of the CFTC’s actions against Coinbase? Let us know your comments in the section below.
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Anti-money laundering measures, MFIs, Enforcement of anti-money laundering measures, MFIs, Fees for underreporting, Misreporting to MFIs, Penalty for underreporting, SOP to MFIs, Netting of fees to MFIs, Underreporting of trade, Underreporting of trade.
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