Coinbase Settled To Pay $6.5 Million Over Trading Irregularities

Coinbase settled to pay $6.5 million with the CFTC related to its trading software according to the announcement that we have today in our Coinbase news.

The announcement didn’t discuss other investigations that were related to Bitcoin Cash and Ethereum that could be ongoing. The CFTC fined Coinbase $6.5 million regarding its activities with the in-house trading software. The agency also alleged a former employee engaged in wash trading related to LTC. The CFTC announced that the crypto exchange giant Coinbase settled to pay $6.5 million in order to settle the allegations of the recorded trades on its GDAX trading platform between 2015 and 2018.

The GDAX platform has since been rebranded as Coinbase Pro and it caters to professional traders and investors. As per the CFTC reports, GDAX delivered false, misleading, or inaccurate reports about transactions in digital assets like BTC. The agency pointed out an activity related to two in-house software programs used by Coinbase that were known as the Replicator and Hedger. The CFTC alleged that those software programs traded with each other which could serve to artificially inflate prices and trading volumes in the GDAX platform.

Coinbase ceased using the software in 2018 right after the COO at that time Asiff Hirji warned that such proprietary trading platforms posed a systematic risk. Under Hirji, the company switched to a so-called agency trading model where every trade is conducted with an outside third party. The CFTC also alleged that one of Coinbase’s former employees engaged in so-called “wash-trading” an illegal activity that involves one entity trading with itself so it is able to convey a high degree of liquidity in a given market.

While the CFTC didn’t name the employee, the activity happened in 2016 and involved LTC which is associated with Charlie Lee. At the same time, Lee was an employee of Coinbase and wanted to add LTC to its platform.  Under the terms of the settlement with the CFTC, Coinbase didn’t admit the allegations but it did disclose a filing related to its impending plans to go public. Commissioner Dawn Stump stated that she agreed that the activity amounted to illegal market manipulation but she still thinks that the agency has no jurisdiction over Coinbase:

“The CFTC cannot be a full-time ‘Cop on the Beat’ for Cash Digital Asset Exchanges,  likely to create unrealistic public expectations for an agency primarily tasked with regulating derivatives markets, not cash markets.”