Shortly before the Initial Public Offering (IPO), Coinbase pays a $6.5 million fine imposed on it by the Commodity Futures Trading Commission (CFTC) to settle false reports and money laundering.


The Commodity Futures Trading Commission (CFTC) has fined the $6.5 million Coinbase cryptocurrency exchange “for reckless, false, misleading or inaccurate reporting, and laundering transactions.” This as Coinbase prepares for its Initial Public Offering (IPO) on the Nasdaq.


The CFTC announced that it has issued an order for the payment of charges against the cryptocurrency trading company Coinbase Inc. “for reckless, false, misleading or inaccurate reports, as well as for laundering transactions”. According to the regulatory authority:


Coinbase is required to pay a $6.5 million civil fine and to stop and avoid further breaches of the Commodity Exchange Act or CFTC regulations.


The order describes that between January 2015 and September 2018, “Coinbase recklessly submitted false, misleading or inaccurate reports about transactions in digital assets, including bitcoin,” on the GDAX platform.


The CFTC found that while Coinbase revealed that it was trading on the GDAX platform, it failed to reveal that “it operated more than one trading program and traded through multiple accounts”. The regulator says that during the period, the company “used two automated trading programs, Hedger and Replicator, which created orders that sometimes matched each other.”


In addition, the regulator explained that “while Hedger and Replicator had independent functions, in practice the programs matched their orders in certain pairs of transactions, resulting in transactions between accounts owned by Coinbase“. The cryptocurrency exchange “included information about these transactions on its website and provided this information to reporting services”, including Crypto Facilities, Coinmarketcap and the NYSE Bitcoin Index. The CFTC clarified:


This type of trading information is used by market participants to discover prices associated with trading or owning digital assets and may have led to a perceived volume and level of liquidity of digital assets, including bitcoin, which was false, misleading or inaccurate.


In addition, the execution order states that between August and September 2016, “a former Coinbase employee used a controlled or misleading device to intentionally place buy and sell orders on the litecoin – bitcoin pair at GDAX that matched each other to clear transactions.” The name of the employee’s employee is not disclosed in the relevant documents.

The CFTC noted that within a few days, the “laundering” of this employee in the litecoin – bitcoin trading pair between accounts he had and controlled was a significant percentage of trading volume, ranging from just 0.62% to 99% of the daily trading volume. “The CFTC claims:


“This created a misleading appearance of liquidity and commercial interest in litecoin. Therefore, Coinbase is considered to be responsible for the conduct of this employee.


Litecoin founder Charlie Lee was Engineering Director at Coinbase from July 2015 to June 2017. In December 2017, Lee stated that he had sold and donated all of his LTCs except some he kept as collectibles.


Meanwhile, Coinbase is preparing for its Initial Public Offering (IPO) through direct exposure to the Nasdaq, where it will be located with the “COIN” symbol. However, the public offering has now been postponed to April. This week, Coinbase applied to sell 114.9 million shares for its IPO. It also stated that recent trading in the private market had valued the company at about $68 billion, a lower valuation than the previous estimate of $100 billion.