Coinbase Liable To Pay $6.5 Mln In Settlements With CFTC - Exclusive.
2021-03-20 | Selina Mathew
Cryptocurrency exchange Coinbase
is liable to pay $6.5 Mln
within a settlement with the CFTC [Commodity Futures Trading Commission] over allegations the exchange “
self-traded” digital assets.
In line with a consent order
revealed by the commodities regulator earlier on Friday, Coinbase self-traded a little
amount of cryptocurrency between 2015 and 2018 through two of its trading programs. An employee of the exchange also allegedly wash traded some amount of Litecoin [LTC, +0.35%] around
that point period
of time also.
One of these programs was designed to project
what proportion of any given crypto asset Coinbase was expected to sell on its retail brokerage app. The system would then purchase the suggested amount of crypto-asset via its professional trading division [GDAX, now
referred to as Coinbase Pro] and hold it
within the exchange’s treasury.
Self-trading is when “the same entity takes
each side of the trade,” a
report by the U.S. Department of the Treasury
and a number of other financial regulators revealed earlier in 2014.
This sort of market activity
might be likened
to scrub trading, where an entity might pump
the quantity of an asset
to form it appear as if more activity was occurring than actually.
Moreover, the CFTC
isn't alleging that any Coinbase customers were harmed or that any wrongdoing occurred. Also, it’s describing the activity as reckless but not intentional. This activity
is not any longer occurring, the CFTC revealed recently on Friday.
Coinbase appears
to possess disclosed the investigation’s existence in its
Form S-1, which
the firm filed prior to publicly listing its shares on Nasdaq.
The CFTC began investigating “trades made earlier in 2017 by
one among the Company’s then-current employees,”
consistent with the S-1. The investigation also included “the design and operation of certain algorithmic functions
associated with liquidity management on the company's platform.”
While the CFTC has conducted other investigations into Coinbase,
consistent with the S-1, along with into an Ethereum “market event”
and therefore the Bitcoin Cash [
BCH, +2.14%] listing,
this is often the sole investigation the exchange anticipated would have a “material adverse effect” on its operations.
In a concurring statement revealed with the settlement, CFTC Commissioner Dawn Stump wrote that while she agreed with the regulator’s findings, she wanted
to make sure the general public is aware that the CFTC doesn’t regulate spot exchanges.
Coinbase doesn’t offer any derivatives products and is therefore not registered with the agency, she outlined. The activity at
the guts of Friday’s enforcement action also doesn’t impact any derivatives covered by the agency.
“The settled charges are based largely on conduct that's several years old, has not been repeated, and within the case of the charge of secondary liability, is predicated on conduct by an employee who left Coinbase years ago and who isn't being charged,” she explained.
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