Coinbase Agrees To Settle Charges With The CFTC

March 22, 2021 03:00 PM
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Ripple (XRP) was up 14% this morning after CoinDesk published a legal analysis suggesting the coin could be relisted by venues in the U.S. THETA (THETA) is also outperforming, seeing 20% gains in the last 24 hours to become the 11th largest crypto by market cap.

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The U.S. CFTC announced on Friday that Coinbase had agreed to settle charges over alleged “false, misleading, or inaccurate reporting and wash trading.” With the firm agreeing to pay a penalty of USD 6.5 million and not admitting fault, this is one of several instances regulators have shown they’re willing to forgive behavior reflective of the gray regulatory history of crypto in certain situations, for certain firms.

According to the CFTC, from January 2015 to September 2018 Coinbase “recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets, including [BTC]” on its GDAX platform, which was later rebranded to Coinbase Pro. 

During the period, Coinbase operated 2 trading bots, Hedger and Replicator, which traded between each other while failing to disclose the activity. The bots could’ve “potentially resulted in a perceived volume and level of liquidity of digital assets, including [BTC], that was false, misleading, or inaccurate.” 

The CFTC also specifically alleges that during a 6-week period in 2016, Coinbase engaged in alleged wash trading on the LTC/BTC pair, resulting in the “misleading appearance of liquidity and trading interest in [LTC].” Coinbase was found to be liable for “that employee’s conduct.” Coinbase told tech news outlet The Verge that the firm “proactively engaged with the CFTC” during the investigation. 

In another example of U.S. regulators taking a less aggressive approach to enforcement with a crypto firm, in 2019, the SEC settled charges with Block.one, the firm behind the EOS network, over alleged securities law violations during an ICO in 2018 that raised USD 4 billion. Block.one paid a fine of USD 24 million. 

According to Block.one, the SEC also granted the firm a “waiver so that Block.one will not be subject to certain ongoing restrictions that would usually apply with settlements of this type.” The settlement, which didn’t affect the status of the EOS token, was also described as resolving “all ongoing matters between Block.one and the SEC.” 

Similarly, Bitfinex and Tether’s settlement with the New York Attorney General (NYAG) over allegations of wrongdoing regarding a loan between the 2 firms, was settled with an USD 18.5 million fine and no admission of wrongdoing. In that case, the NYAG found that Bitfinex and Tether had violated the law and that the “Settlement Agreement” was in the “public interest.”

Compared to cases such as those against Ripple, BitMEX, Kik, where regulators took an aggressive route that in some cases included criminal charges against founders, this settlement shows that a less aggressive approach does exist for regulators. 

Coinbase’s settlement, along with Block.one’s and Tether’s/Bitfinex’s, shows regulators may be satisfied with issuing fines and correcting alleged unlawful conduct. At this point, however, the U.S. regulator decision process does seem to carry a subjective element. As recently as last week, Bloomberg reported that Binance is being investigated by the CFTC over allegations it allowed US residents to trade products that broke local rules. 

While it’s comforting that a path has been established to right prior regulatory wrongs, at this point, it’s difficult to identify any kind of process that regulators are utilizing in their enforcement.  

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