How the CFTC fine on Coinbase could affect future crypto company listing

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How the CFTC fine on Coinbase could affect future crypto company listing

The Commodity Futures Trading Commission (CFTC) has imposed a $6.5 million fine on Coinbase. The regulator is accusing the Exchange of false or misleading reporting and wash trading, per an official statement.

Between 2015 and 2018, according to the CFTC order, a former Coinbase employee engaged in the referenced misconduct on the GDAX platform. The exchange has received an order to cease “further violations”. According to the official release:

Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets, including Bitcoin, on the GDAX electronic trading platform it operated.

The exchange allegedly operated two “automated trading programs” called Hedger and Replicator. These bots generated trade orders that “matched with one another”. The exchange did not report to the CFTC that it operated multiple accounts, according to the order.

Coinbase was trading on GDAX, but failed to disclose that Coinbase was operating more than one trading program and trading through multiple accounts. In addition, the order finds that while Hedger and Replicator had independent purposes, in practice the programs matched orders with one another in certain trading pairs, resulting in trades between accounts owned by Coinbase.

The information generated by the trade between the bots was included on Coinbase’s website. Then, entities such as the Chicago Mercantile Exchange (CME), NYSE Bitcoin Index, CoinMarketCap OpCo, took this data and replicate it on their own platforms. The order states:

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.

Fake liquidity in Bitcoin/Litecoin trading pair

Further evidence found by the CFTC indicates that between September and November 2016, the aforementioned former Coinbase employee manipulated Bitcoin/Litecoin trading pair. Thereby creating “false liquidity” reports. The employee’s name has not been disclosed by the regulator.

Acting Director of Enforcement for the CFTC, Vincent McGonagle, stated:

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.

A separate report by journalist Wu Blockchain states that there are several former Coinbase employees, executives, and other personnel cooperating with the CFTC investigation. Coinbase is in preparation to become a public company.

The ongoing prosecution by the CFTC may affect the entire industry, Wu Blockchain said:

Coinbase will postpone its listing until April.  Earlier, CFTC announced on Friday that it would impose a fine of $6.5 million. It may affect subsequent listings of cryptocurrency companies in the United States and Greater China.