The settlement focused on two areas: information about trading activity on Coinbase’s GDAX trading platform and allegations of washout trading by a Coinbase employee for a six-week period in 2016.
The US regulator said that “between January 2015 and September 2018, Coinbase recklessly delivered false, misleading or inaccurate reports regarding transactions in digital assets, including Bitcoin, on the electronic trading platform GDAX that she exploited ”.
The issue was related to two features of its institution-driven exchange at the time, GDAX, which helped it interact with Coinbase’s retail consumption platform. GDAX later became Coinbase Pro.
One feature, Hedger, projected how much inventory the company would need from its GDAX institutional exchange. Transfers between the two sites would be reported as trade volume, which the CFTC considers to be an erroneous report. In addition, another feature, dubbed Replicator, would replicate the depth of the master order book for a specific asset in the order books of other pairs. The firm has never disclosed these characteristics to its customers, according to the CFTC.
“According to the ordinance, transactional information of this type is used by market participants for the discovery of prices related to the trading or possession of digital assets, and has potentially resulted in a perceived volume and level of liquidity of digital assets, including Bitcoin, which were fake and misleading. , or inaccurate, ”the CFTC said.
In addition, the regulator looked into the alleged washing operations that took place on the platform.
“The order also finds that over a six-week period – August through September 2016 – a former Coinbase employee used a manipulative or deceptive device while intentionally placing buy and sell orders in the Litecoin trading pair. / Bitcoin on GDAX which matched as wash This created the deceptive appearance of liquidity and trading interests in Litecoin. Coinbase is therefore held vicariously liable as principal for the conduct of that employee, ”the CFTC said in its statement.
As the consent order further explained:
“On some days, Employee A’s wash transactions in the Litecoin / Bitcoin trading pair between accounts he owned and controlled, made up a substantial percentage of the deal volume in the contract, ranging from as low as 0. , 62% to 99.0% of daily trading volume. ”
Pursuant to the consent order, which is incorporated below, Coinbase has neither admitted nor denied the CFTC’s findings.
News of the CFTC investigation was presented in the company’s S-1 file, released last month ahead of its scheduled direct listing. In the filing, Coinbase said that in July 2017, the agency “opened an investigation that covered topics such as an event in the Ethereum 2017 market, transactions made in 2017 by one of the then current employees. of the company, the list of Bitcoin Cash on the company. platform, and the design and operation of certain algorithmic functions related to liquidity management on the Company’s platform. ”
CFTC Commissioner Dawn Stump commented on the regulation in a concurring statement, stressing a desire to “ensure that the public is not misled into thinking the CFTC is regulating exchanges such as Coinbase.” This is not the case “.
Stump did take the agency to task for its investigation, and went on to write that “the charges against Coinbase and settled by the Commission are based in large part on behavior that is several years old.”
“While I agree with the findings and the terms of the Settlement Order before us today, I wonder if the Commission has fulfilled the above responsibilities in this matter,” she concluded.
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