Coinbase admits data manipulation, postpones IPO to April

The crypto exchange gets off lightly in its case with the CFTC, but must postpone its planned IPO.

Influential crypto exchange Coinbase is postponing its planned March IPO until next month, presumably in connection with a fine to the US regulator CFTC, which had accused the trading platform of multiple manipulations of trading data at once.

The Commodity Futures Trading Commission, the American supervisory authority for derivatives trading, announced on 19 March that it had reached a settlement with the Financial Peak scam crypto exchange in the proceedings against Coinbase. The allegations were that Coinbase deliberately transmitted false trading data for Bitcoin, and that an employee of the platform engaged in unlawful proprietary trading in Litecoin to suggest high trading volumes and high demand for the cryptocurrency.

“The transmission of false, misleading and inaccurate transaction data undermines the integrity of cryptocurrency pricing,” as Vincent McGonagle, the CFTC’s director of law enforcement, explains to this effect. To which he adds: “The prosecution of this offence underscores that the CFTC is intervening to protect the integrity and transparency of this information.”

As the regulator’s notice states, Coinbase used two automated trading programmes called Hedger and Replicator from January 2015 to September 2018. Although the crypto exchange had admitted that it used trading programmes, it had not disclosed that these were specifically used to match trades. Thus, by using them to complete open trades on the platform, the crypto exchange created the impression of much higher trading activity than actually existed.

As a result, the Coinbase API transmitted false or falsified trade data that was fed “directly” into reliable crypto market data sources such as the CME Bitcoin Real Time Index, CoinMarketCap and the NYSE Bitcoin Index.

The CFTC states that this fake data “may have simulated high trading volumes and high liquidity of cryptocurrencies like Bitcoin that were not true”.

In addition, the agency notes that during a six-week period in 2016, a Coinbase employee unlawfully entered into open trades for the LTC/BTC currency pair to simulate liquidity and demand for the cryptocurrency Litecoin. The CFTC holds Coinbase responsible for the employee’s actions in this regard.

As part of the settlement, the crypto exchange will be ordered to pay a penalty of 6.5 million US dollars. At the same time, this is an admission of guilt that could be sand in the gears for the platform, at least in the short term.

IPO postponed?

This is probably already making itself felt, because following the settlement with the CFTC, Bloomberg reports that Coinbase has postponed the IPO planned for March until April.

Citing internal sources, the news portal states that the targeted IPO on the American stock exchange has been postponed for the time being, without giving specific details.

However, not all Bloomberg reports on the crypto industry are to be taken at face value. For example, the paper had recently claimed that the TRON boss Justin Sun had won the almost 70 million US dollar record auction for a crypto work of art (NFT), which later turned out to be a false report. In addition, Bloomberg had reported a few days ago that the CFTC was investigating the market-leading crypto exchange Binance, which Binance CEO Changpeng Zhao denied shortly afterwards.

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