The Commodity Futures Trading Commission (CFTC) issued on Friday (19) a request to close and settle charges against the San Francisco, Calif.-Based exchange Coinbase for “reckless, false, misleading or inaccurate reports, as well as negotiations for laundering a former employee on the GDAX (current Coinbase Pro) of the Coinbase platform ”.
The order requires the broker to pay a civil fine of $ 6.5 million (R $ 35.69 million) and to stop any further violations of the Commodity Exchange Act or CFTC regulations, as charged.
“Reporting false, misleading or inaccurate transaction information undermines the integrity of the prices of digital assets,” said Chief Inspector Vincent McGonagle. “This enforcement action sends the message that the Commission will act to safeguard the integrity and transparency of such information.”
Understand the case
According to the prosecution, between January 2015 and September 2018, Coinbase “recklessly delivered false, misleading or inaccurate reports on transactions in digital assets, including Bitcoin, on the GDAX electronic trading platform it operated.”
During these 3 years, Coinbase operated two automated trading bots, Hedger and Replicator, which generated orders that sometimes matched each other. GDAX’s trading rules specifically disclosed that Coinbase was trading on GDAX, but did not disclose that Coinbase was operating more than one trading program and effectively generating volume through multiple accounts.
In addition, the order concludes that, although the two bots serve independent purposes, in practice the programs have combined orders with each other in certain trading pairs, resulting in negotiations between different accounts owned by Coinbase.
The American brokerage then added the information for these transactions to its website and provided that information to the reporting services, either directly or through accessing its website. Reporting companies such as Crypto Facilities, which publishes CME’s real-time Bitcoin index, and CoinMarketCap received access to Coinbase’s transactional information through the Coinbase Application Programming Interface, while the NYSE Bitcoin Index received it directly on exchange transmissions.
According to the order, such transactional information is used by market participants to discover prices related to trading or ownership of digital assets and potentially resulted in a perceived volume and liquidity level of digital assets, including Bitcoin, which was “ false, misleading, or inaccurate ”.
The CFTC also finds that over a six-week period – from August to September 2016 – a former Coinbase employee used a manipulative or deceptive device when intentionally placing buy and sell orders on the Litecoin / Bitcoin trading pair on GDAX which combined with each other as wash trading operations (market manipulation to artificially increase demand). This created a deceptive appearance of liquidity and commercial interest at Litecoin. Coinbase is therefore held indirectly responsible as the principal for the conduct of this employee.
The brokerage has agreed to pay the millionaire fine to the United States government agency.