366 Interactions, 2 today
Coinbase hits headlines again shortly before its direct listing after the CFTC holds it liable for a three-year-long wash trading scheme.
Coinbase committed to a $6.55 million fine just before its direct listing after the CFTC discovered that the exchange participated in fraudulent wash trade activities.
The CFTC discovered that Coinbase may have participated in financial activities that offered false data to providers such as Coinmarketcap and the CME Bitcoin Real Time Index. This occurred as a result of the illegal use of trading bots and even suspicious behaviour by a single anonymous worker.
This fine, according to Acting Director of Enforcement Vincent McGonagle, sends a warning to the cryptocurrency sector that the CFTC is speeding up its attempts to prosecute and penalise any illegal activities carried out by regulated exchanges in the United States.
“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.”
Coinbase decided to pay the fine in order to leave no blemishes until its direct sale. Back in sdfsf, it also disabled margin trading on Coinbase Pro in order to comply with a series of CFTC guidelines.
How Two Bots Gave Coinbase 6.5 Million Headaches
The CFTC explains that the irregularity happened due to the misuse of two order automation programs that GDAX implemented in the past. GDAX was later rebranded to Coinbase Pro in 2018 and is a trading platform geared toward advanced users.
The framework used Hedger and Replicator tools to simplify purchases at the time. The CFTC may not go through specifics of how the two systems functioned, although it is understood that they could have competed against each other.
As this occurs, they will record higher volumes than real platform operation, enticing traders to use Coinbase for a certain pair since it is considered more active.
This, of course, did not sit well with US regulators, who spared no criticism for the website during the press conference:
“Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets, including Bitcoin, on the GDAX electronic trading platform it operated.”
According to speculation from FTX’s CEO, Hedger could be an algorithm that seeks minimal intervention to balance prices while replicator could have a profit maximization or liquidity maintenance focus on pairs.
11) Replicator: retail buys 1 BTC on the Coinbase mobile app (paying 5!). “Replicator” buys 1 BTC immediately on the Coinbase orderbook.
Hedger would trade with Replicator if retail had been net buying but then someone sold, and one of the two (hedger, probably) was providing.
— SBF (@SBF_Alameda) March 20, 2021
Litecoin Makes The Headlines Again (For The Wrong Reasons)
The CFTC also mentions that an unidentified staff member used the platform to manipulate the Litecoin market, giving the appearance of increased liquidity or activity.
“The order also finds that over a six-week period-August through September 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. This created the misleading appearance of liquidity and trading interest in Litecoin. Coinbase is therefore found to be vicariously liable as a principal for this employee’s conduct.”
This is an odd coincidence since Charlie Lee, the founder of Litecoin, was the Director of Engineering at Coinbase at the time. The release, however, makes no mention of Charlie Lee or any other staff member, suggesting that the exchange is entirely to blame for this misbehaviour.
Charlie Lee, Coinbase, and its management staff have also been quiet on the matter.