- J McGlynn and M Bacina
Coinbase slapped with $6.5M fine for misleading customers
The Commodity Futures Trading Commission (CTFC) has fined California based digital asset exchange operator, Coinbase Inc., for "reckless false, misleading, or inaccurate reporting as well as wash trading by a former employee on Coinbase’s GDAX platform."
The CFTC alleged that Coinbase provided misleading information about trading volumes between January 2015 and September 2018, when Coinbase operated two trading programs which "sometimes traded Bitcoin and Litecoin with each other and included those trades in data it shared with outside services.". That is, it was alleged Coinbase was counting related party trading in it's volumes, which would artificially inflate those volumes. The CFTC also alleged Coinbase failed to tell the public that they were "operating more than one trading program and trading through multiple [related] accounts."
While the CTFC puts Coinbase's actions down to acts of carelessness rather than deceit, saying:
... [a] former Coinbase worker abused the programs between August and September 2016 to buy and sell crypto in "wash trades" that artificially inflated activity.
Dawn Stump CTFC Commissioner has emphasised that she does not want this decision to suggest the CTFC has "more power to regulate crypto exchanges than it [presently does]".
However, Vincent McGonagle, the Acting Director of Enforcement at CFTC said:
this enforcement action sends the message that the Commission will act to safeguard the integrity and transparency of [digital asset pricing].
While the CFTC acknowledges that that there was no malice behind Coinbase's actions and that the misleading reporting had not occurred recently, the fine is a positive step in underling the importance of the sector maturing out of the "wild west" reputation it previously had. With Coinbase's IPO pending in a week, a clear signal has been sent that US digital currency exchanges will be held to clear standards of honesty and fairness. Australia of course has some of the strongest consumer protection standards in the world, and it would not be surprising to see those protections being applied to digital currency exchanges down under as the space matures.