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> The order also finds that over a six-week period—August through September 2016—a former Coinbase employee used a manipulative or deceptive device by intention

by koolba 6y ago

> The order also finds that over a six-week period—August through September 2016—a former Coinbase employee used a manipulative or deceptive device by intentionally placing buy and sell orders in the Litecoin/Bitcoin trading pair on GDAX that matched each other as wash trades. This created the misleading appearance of liquidity and trading interest in Litecoin. Coinbase is therefore found to be vicariously liable as a principal for this employee’s conduct. If I’m reading this right, the employee had a program interfering with GDAX generating dummy orders filled by itself. To other customers, would look like real liquidity on the platform but it was astroturfing. Was this “fake it till you make it” or something more manipulative? Or perhaps just a lone employee trying to pump Litecoin for their own profit?

PragmaticPulp 6y ago
The statement sounds as though the employee was deliberately generating the appearance of liquidity and demand by placing wash trades. It's mind boggling that this would happen at one of the most regulated exchanges in the world. Cryptocurrency is like the wild west of finance, but I expected at least Coinbase was playing fair. Apparently not.
- koolba 6y ago
  Note that this is 2016 Coinbase. Not 2021, getting ready for IPO, Coinbase.
  - loeg 6y ago
    Explicitly, 2015 through 2018.
  - throwaway4good 6y ago
    Yeah. Now there is more money in this ipo thing ...
  - deleted 6y ago
    [deleted]
- peteretep 6y ago
  > deliberately generating the appearance of liquidity and demand by placing wash trades What’s bad about that? (not concern trolling, just a noob)
  - TylerE 6y ago
    Without liquidity, an asset is worthless. If it's quoted as being worth $100, but there are no actual buyers, it isn't actually worth $100.
    - loeg 6y ago
      You could spoof a large order book without ever wash-trading with yourself (this is not legal advice). The specific regulation is around self-trades. If there is a lot of orders around $99.98 and $100.02 you can be pretty confident something is worth about $100 even if it never trades.
      - deleted 6y ago
        [deleted]
  - matheusmoreira 6y ago
    It makes people think the asset is more valuable than it really is.
  - ncallaway 6y ago
    If millions of people bought and sold a widget in the last week for ~$10, you can be pretty confident that the widget is (currently) worth around $10. If one person bought or sold a widget in the last week for $10, you might have a lot less certainty about the actual value of the widget.
    - petewailes 6y ago
      Strangely this isn't in fact true. It feels like it should be, but just because something has been consistent historically is not evidence that that's going to continue into the future.
- weird-eye-issue 6y ago
  "one of the most regulated exchanges in the world" Is this sarcasm?
  - loeg 6y ago
    Implicit in the statement is that this is relative, by the extremely low standard of bitcoin exchanges.
  - dataflow 6y ago
    They meant one of the most regulated cryptocurrency exchanges. I don't think that's sarcastic. Try to cite a few that are significantly more regulated.
    - weird-eye-issue 6y ago
      Alright that would be fair then
    - carstenhag 6y ago
      I don't think the statement is fair/correct because we don't know whether it is regulated well/properly at all. We have nothing to compare/benchmark basically, so why call it the "most regulated" one?
- derf_ 6y ago
  You say that like this stuff does not happen in other regulated contexts: https://www.fca.org.uk/news/press-releases/fca-fines-and-prohibits-trader-market-abuse https://www.fca.org.uk/news/press-releases/fca-fines-and-pro... Without trying to defend Coinbase in particular, isn't the fact that this was caught and punished evidence of the system working as intended? Like, what you would not want to see is a "regulated" market where the regulators never find anything bad going on.
  - PragmaticPulp 6y ago
    > You say that like this stuff does not happen in other regulated contexts I didn’t say anything about other regulated contexts? The regulations and enforcement agency exists because this was happening long before cryptocurrency. Cryptocurrency is just uniquely positioned to support techniques like wash trading because it’s much easier to create multiple wallets and transfer funds around in ways that obscure the origin. “Everyone else is doing it” isn’t an excuse.
  - sneak 6y ago
    > Without trying to defend Coinbase in particular, isn't the fact that this was caught and punished evidence of the system working as intended? Debatable, as most criminal activity in our society carries with it something more deterring than simply a fine. Having to write a check is what happens when you get sued and lose (a civil issue).
- grey-area 6y ago
  I think you meant to say 'one of the most regulated cryptocurrency exchanges in the world', in which case this isn't so surprising because the exchanges and currencies in that space are a mess of unregulated and downright fraudulent actors who actively deceive their customers and try to avoid scrutiny (bitfinex is another recently). We should not be surprised by this, it is the norm, and much more fraud and self-dealing will come to light after this bubble bursts.
- dave_sullivan 6y ago
  Interviewed there once. Would not work there or keep my money there, bunch of jokers.
  - mhm776 6y ago
    More info dave...
  - gunshai 6y ago
    More info dave...
    - dave_sullivan 6y ago
      I don't think this is the place to discuss details, let's just say I walked away unimpressed by the business and the people I spoke with.
- frombody 6y ago
  >It's mind boggling that this would happen at one of the most regulated exchanges in the world. I think you're misinterpreting what you are reading. This is not coinbase doing anything, this is an employee taking action on their own, likely not even on company time or on company property. That said, the company is still responsible for the employees' actions, especially because it relates directly to their job.
  - ac29 6y ago
    > This is not coinbase doing anything Per the article: "Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets"
- 908087 6y ago
  You're being sarcastic with the "mind boggling" part, right? I always assumed it was obvious to anyone who was paying attention and didn't intentionally have blinders on, that this was happening across pretty much every cryptocurrency exchange, and has been for years.
xiphias2 6y ago
Charlie Lee (the creator of Litecoin) quit Coinbase in 2017, and he owned most Litecoins in existence, and he was the director of engineering there. (I don't have any non-public information though, so take what I wrote just as general information).
- dangero 6y ago
  I don’t believe that he owned most Litecoins. That said, considering Lee publicly sold at the top of the last bubble, could this be smoking gun to a pump and dump scheme?
  - thefounder 6y ago
    > could this be smoking gun to a pump and dump scheme? Brokers do this all the time. It's not really something unusual as you might think.
bawolff 6y ago
When you "fake it till you make it" in applications involving other people's money, i'm pretty sure that's just fraud.
dheera 6y ago
I mean, market manipulation can't be illegal on crypto is it? I thought the whole point of crypto was anarchy and decentralization? Maybe it's time for Reddit to hype up some coin so that the fines can be covered?
maxerickson 6y ago
Preventing a single individual from manipulating trading activity is a basic control for a trading platform. It's a failure of the company regardless of whether the employee acted alone or not.
loceng 6y ago
From another article - https://www.coindesk.com/coinbase-settles-with-cftc-for-6-5m-over-old-trading-practices https://www.coindesk.com/coinbase-settles-with-cftc-for-6-5m... - “Importantly, the CFTC is not alleging that any Coinbase customers were harmed or that any wrongdoing occurred. Rather, it’s describing the activity as reckless but not intentional. This activity is no longer occurring, the CFTC said Friday.” The behaviour described otherwise is clearly intentional, so Coinbase’s PR seems to be trying to whitewash their history. It makes me believe my hypothesis that Coinbase deliberately (through purposeful neglect or action) allows or causes the platform to become inaccessible to users when Bitcoin price starts to skyrocket - to block and prevent impulse "HODLers" from selling, allowing enough time for the impulse of many to quell, among other consequences; I'd be curious if Coinbase collects login attempt data during this time, failed logins, or if their whole website including login system is also down.

by koolba 6y ago

PragmaticPulp 6y ago

The statement sounds as though the employee was deliberately generating the appearance of liquidity and demand by placing wash trades. It's mind boggling that this would happen at one of the most regulated exchanges in the world. Cryptocurrency is like the wild west of finance, but I expected at least Coinbase was playing fair. Apparently not.

koolba 6y ago
Note that this is 2016 Coinbase. Not 2021, getting ready for IPO, Coinbase.
- loeg 6y ago
  Explicitly, 2015 through 2018.
- throwaway4good 6y ago
  Yeah. Now there is more money in this ipo thing ...
- deleted 6y ago
  [deleted]
peteretep 6y ago
> deliberately generating the appearance of liquidity and demand by placing wash trades What’s bad about that? (not concern trolling, just a noob)
- TylerE 6y ago
  Without liquidity, an asset is worthless. If it's quoted as being worth $100, but there are no actual buyers, it isn't actually worth $100.
  - loeg 6y ago
    You could spoof a large order book without ever wash-trading with yourself (this is not legal advice). The specific regulation is around self-trades. If there is a lot of orders around $99.98 and $100.02 you can be pretty confident something is worth about $100 even if it never trades.
    - deleted 6y ago
      [deleted]
- matheusmoreira 6y ago
  It makes people think the asset is more valuable than it really is.
- ncallaway 6y ago
  If millions of people bought and sold a widget in the last week for ~$10, you can be pretty confident that the widget is (currently) worth around $10. If one person bought or sold a widget in the last week for $10, you might have a lot less certainty about the actual value of the widget.
  - petewailes 6y ago
    Strangely this isn't in fact true. It feels like it should be, but just because something has been consistent historically is not evidence that that's going to continue into the future.
weird-eye-issue 6y ago
"one of the most regulated exchanges in the world" Is this sarcasm?
- loeg 6y ago
  Implicit in the statement is that this is relative, by the extremely low standard of bitcoin exchanges.
- dataflow 6y ago
  They meant one of the most regulated cryptocurrency exchanges. I don't think that's sarcastic. Try to cite a few that are significantly more regulated.
  - weird-eye-issue 6y ago
    Alright that would be fair then
  - carstenhag 6y ago
    I don't think the statement is fair/correct because we don't know whether it is regulated well/properly at all. We have nothing to compare/benchmark basically, so why call it the "most regulated" one?
derf_ 6y ago
You say that like this stuff does not happen in other regulated contexts: https://www.fca.org.uk/news/press-releases/fca-fines-and-prohibits-trader-market-abuse https://www.fca.org.uk/news/press-releases/fca-fines-and-pro... Without trying to defend Coinbase in particular, isn't the fact that this was caught and punished evidence of the system working as intended? Like, what you would not want to see is a "regulated" market where the regulators never find anything bad going on.
- PragmaticPulp 6y ago
  > You say that like this stuff does not happen in other regulated contexts I didn’t say anything about other regulated contexts? The regulations and enforcement agency exists because this was happening long before cryptocurrency. Cryptocurrency is just uniquely positioned to support techniques like wash trading because it’s much easier to create multiple wallets and transfer funds around in ways that obscure the origin. “Everyone else is doing it” isn’t an excuse.
- sneak 6y ago
  > Without trying to defend Coinbase in particular, isn't the fact that this was caught and punished evidence of the system working as intended? Debatable, as most criminal activity in our society carries with it something more deterring than simply a fine. Having to write a check is what happens when you get sued and lose (a civil issue).
grey-area 6y ago
I think you meant to say 'one of the most regulated cryptocurrency exchanges in the world', in which case this isn't so surprising because the exchanges and currencies in that space are a mess of unregulated and downright fraudulent actors who actively deceive their customers and try to avoid scrutiny (bitfinex is another recently). We should not be surprised by this, it is the norm, and much more fraud and self-dealing will come to light after this bubble bursts.
dave_sullivan 6y ago
Interviewed there once. Would not work there or keep my money there, bunch of jokers.
- mhm776 6y ago
  More info dave...
- gunshai 6y ago
  More info dave...
  - dave_sullivan 6y ago
    I don't think this is the place to discuss details, let's just say I walked away unimpressed by the business and the people I spoke with.
frombody 6y ago
>It's mind boggling that this would happen at one of the most regulated exchanges in the world. I think you're misinterpreting what you are reading. This is not coinbase doing anything, this is an employee taking action on their own, likely not even on company time or on company property. That said, the company is still responsible for the employees' actions, especially because it relates directly to their job.
- ac29 6y ago
  > This is not coinbase doing anything Per the article: "Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets"
908087 6y ago
You're being sarcastic with the "mind boggling" part, right? I always assumed it was obvious to anyone who was paying attention and didn't intentionally have blinders on, that this was happening across pretty much every cryptocurrency exchange, and has been for years.

xiphias2 6y ago

Charlie Lee (the creator of Litecoin) quit Coinbase in 2017, and he owned most Litecoins in existence, and he was the director of engineering there. (I don't have any non-public information though, so take what I wrote just as general information).

dangero 6y ago
I don’t believe that he owned most Litecoins. That said, considering Lee publicly sold at the top of the last bubble, could this be smoking gun to a pump and dump scheme?
- thefounder 6y ago
  > could this be smoking gun to a pump and dump scheme? Brokers do this all the time. It's not really something unusual as you might think.

bawolff 6y ago

When you "fake it till you make it" in applications involving other people's money, i'm pretty sure that's just fraud.

dheera 6y ago

I mean, market manipulation can't be illegal on crypto is it? I thought the whole point of crypto was anarchy and decentralization? Maybe it's time for Reddit to hype up some coin so that the fines can be covered?

maxerickson 6y ago

Preventing a single individual from manipulating trading activity is a basic control for a trading platform. It's a failure of the company regardless of whether the employee acted alone or not.

loceng 6y ago

From another article - https://www.coindesk.com/coinbase-settles-with-cftc-for-6-5m-over-old-trading-practices https://www.coindesk.com/coinbase-settles-with-cftc-for-6-5m... - “Importantly, the CFTC is not alleging that any Coinbase customers were harmed or that any wrongdoing occurred. Rather, it’s describing the activity as reckless but not intentional. This activity is no longer occurring, the CFTC said Friday.” The behaviour described otherwise is clearly intentional, so Coinbase’s PR seems to be trying to whitewash their history. It makes me believe my hypothesis that Coinbase deliberately (through purposeful neglect or action) allows or causes the platform to become inaccessible to users when Bitcoin price starts to skyrocket - to block and prevent impulse "HODLers" from selling, allowing enough time for the impulse of many to quell, among other consequences; I'd be curious if Coinbase collects login attempt data during this time, failed logins, or if their whole website including login system is also down.