Popular leading cryptocurrency exchange Coinbase is getting some guff from the Commodity Futures Trading Commission (CFTC) in the form of a $6.5 million penalty.
Coinbase Is Forced to Pay a Fine
The trading platform is being accused of providing misleading accounting information to the organization and for inflating trading figures. In addition, a former employee that no longer works with Coinbase is being accused of a tactic called wash trading, so what does all this mean for the exchange that’s literally weeks away from an initial public offering (IPO)?
At the time of writing, the company has not admitted to any wrongdoing, and has instead chosen to settle the financial demands of the agency by paying the $6.5 million. In a statement, Coinbase tells its users that their activity and their funds remain entirely unaffected by the situation. The company says:
We proactively engaged with the CFTC throughout their investigation, and we believe that our conversations were constructive and contributed to an outcome that is satisfactory for both parties.
The CFTC invokes its right to investigate cryptocurrency exchanges and trading platforms when it feels there are examples of fraudulent activity taking place. In a separate statement, the organization claims that it doesn’t feel Coinbase submitted the information it did due to malintent. Rather, it believes the company just behaved in a careless manner.
The allegations stem from the years 2015 through 2018 and have to do with trading activities recorded through Coinbase Pro, the institutional division of the exchange. Coinbase Pro featured two separate products – one for bitcoin, the other for Litecoin – and provided volume trade information for both assets. The company is being accused of inflating the numbers having to do with these trades, and the CFTC now claims that Coinbase may have provided misleading data.
Most of the action appears to narrow down to a former employee that is believed to have engaged in “wash trading” while working at Coinbase. Wash trading is a prohibited maneuver in the trading world and involves sending in buy and sell orders that ultimately match. This creates a trade without the ownership of an asset ever changing. The process of wash trading is typically banned in most environments as it deceives traders into believing liquidity is higher than normal.
Dawn Stump – the commissioner of the CFTC – says that while she agrees with the ruling against Coinbase, it is not in the CFTC’s job description to regulate crypto exchanges. Rather, it’s the regulating of crypto activities that’s the agency’s true job, and she doesn’t want traders getting the wrong impression.
Taking Things a Step Too Far?
I believe that this case reflects poorly on the commission’s enforcement priorities.
Based on the number of outstanding shares recorded early last week, it is suggested that Coinbase presently has a valuation exceeding $67 billion.