Summary:
- The CFTC has ordered Coinbase to pay $6.5 million for ‘false, misleading or inaccurate reporting and wash trading’
- Coinbase is also ordered to cease and desist from any further violations of the Commodity Exchange act
- The accusations center on trading activities on Coinbase between January 2015 and September 2018
The Commodity Futures Trading Commission has ordered Coinbase to pay a penalty of $6.5 million for what the CFTC describes as ‘reckless false, misleading, or inaccurate reporting as well as wash trading by a former employee on Coinbase’s GDAX platform’.
According to the settlement, Coinbase is also ordered to cease and desist from any further violations of the Commodity Exchange act or additional CFTC regulations. The Acting Director of Enforcement at the CFTC, Vincent McGonagle, pointed out that the actions sent a clear message to other platforms in the digital asset ecosystem.
Wash Trading on Coinbase Happened Between January 2015 and September 2018
With respect to a time frame as to when the acts were committed, the CFTC narrowed it down to between January 2015 and September 2018 when two automated trading programs were used on Coinbase as described below.
During this period, Coinbase operated two automated trading programs, Hedger and Replicator, which generated orders that at times matched with one another. The GDAX Trading Rules specifically disclosed that Coinbase was trading on GDAX, but failed to disclose that Coinbase was operating more than one trading program and trading through multiple accounts.
The CFTC goes on to explain that both Hedger and Replicator sometimes matched orders with one another in certain trading pairs on Coinbase. The exchange went on to include the information for these transactions on its website and also provided it to reporting services thus affecting market indices elsewhere. The CFTC explained the chain of events as follows.
Real Time Index, and CoinMarketCap OpCo, LLC, which posts such transactional information on its website, received access to Coinbase’s transactional information via Coinbase’s Application Programming Interface, while the NYSE Bitcoin Index, received it directly in transmissions from Coinbase.
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.
Deceptive Orders in the Litecoin/Bitcoin Pair
Additionally, the CFTC highlighted that between August and September of 2016, a former Coinbase employee ‘used a manipulative or deceptive device by intentionally placing buy and sell orders in the Litecoin/Bitcoin trading pair on GDAX that matched each other as wash trades’.
