The Commodity Futures Trading Commission (CFTC) has fined Coinbase $ 6.5 million. The regulator accuses the exchange of false or misleading reporting and laundering, according to an official statement.
According to the CFTC regulation, a former Coinbase employee was involved in the aforementioned misconduct on the GDAX platform between 2015 and 2018. The exchange has been ordered to stop “further violations”. According to the official publication:
Coinbase ruthlessly provided false, misleading, or inaccurate reports on transactions involving digital assets, including Bitcoin, on the GDAX electronic trading platform it operates.
The exchange reportedly operated two “automated trading programs” called Hedger and Replicator. These bots generated trade orders that “matched” each other. The exchange did not report to the CFTC that it had multiple accounts as per the order.
Coinbase traded on the GDAX but did not disclose that Coinbase operated more than one trading program and traded across multiple accounts. In addition, the order notes that, while the Hedger and Replicator had independent purposes, in practice the programs match orders in certain trading pairs, leading to trades between accounts of Coinbase.
The information generated by trading between the bots has been published on the Coinbase website. Companies like the Chicago Mercantile Exchange (CME), the NYSE Bitcoin Index, and CoinMarketCap OpCo took this data and replicated it on their own platforms. The order states:
Transaction information of this type is used by market participants to determine prices related to trading or owning digital assets and may have resulted in a perceived volume and liquidity level of digital assets, including Bitcoin, that was false, misleading or inaccurate.
Fake liquidity in the Bitcoin / Litecoin trading pair
Further evidence found by the CFTC suggests that the aforementioned former Coinbase employee tampered with the Bitcoin / Litecoin trading pair between September and November 2016. This will generate “false liquidity” reports. The name of the employee was not disclosed by the supervisory authority.
Vincent McGonagle, Acting Enforcement Director of the CFTC stated:
Reporting false, misleading, or inaccurate transactional information undermines the integrity of digital asset pricing. This enforcement action sends the message that the Commission will act to ensure the integrity and transparency of this information.
A separate report by journalist Wu Blockchain states that several former Coinbase employees, executives and other staff are working on the CFTC investigation. Coinbase is preparing to become a public company.
Ongoing law enforcement by the CFTC could affect the entire industry, Wu Blockchain said:
Coinbase will move its listing to April. Earlier, the CFTC announced on Friday that it would be fined $ 6.5 million. This may affect subsequent listings of cryptocurrency companies in the US and Greater China.