Coinbase has found itself in a tussle with the authorities over volumes manipulation just before its direct listing. The company has announced that it will pay a fine of $6.5 million in a settlement with the Commodity Futures Trading Commission (CFTC). The whole issue is regarding wash trading, which the commission found to have been ongoing for 3-years.
The company was supplying misleading information to crypto data providers such as CoinMarketCap and the CME through wash trading. CFTC’s acting director of enforcement, Vincent McGonagle, stated that the fine is a warning shot to the crypto industry that they would not tolerate such behavior and drive up investigations into illegal practices by crypto exchanges within the United States.
He added that when exchanges report misleading information about their transactions, it hurts the market’s integrity, especially digital asset pricing. He further stated that the commission would not relent to maintain transparency and integrity in the market.
As part of its agreement with the regulator, Coinbase also disabled margin trading on Coinbase Pro. The goal is to comply with the CFTC’s guidelines ahead of the direct listing. The issue between the CFTC and Coinbase stems from two bots that were misused. The CFTC says that two software Hedger, and Replicator were traded against each other, creating the impression of high volumes. This misled investors that certain pairs were actively traded when they did not have much in trading activity in reality.
Besides the volume manipulation, the regulator also states that unnamed staff members also manipulated the price of Litecoin to create the impression that it was a highly traded pair.