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Digital Asset Company Settles CFTC Reporting and Wash Trade Violations

A digital asset exchange company settled CFTC charges for delivering "false, misleading or inaccurate reports" of transactions on the company's electronic trading platform and for wash trades by one of the company's former employees.

According to the Order, the company operated two trading programs that matched orders with one another, and the company "recklessly" reported the transactional data - including volume and price information - of the matched orders.

A former company employee engaged in wash sales of a particular digital asset on the company's trading platform using accounts associated with his personal email addresses. The CFTC stated that the employee's wash trading ranged from 0.62 percent to 99 percent of the daily trading volume of the digital asset.

The CFTC concluded that the company violated CEA Section 6(c)(1)(A) ("Prohibitions on manipulation and false information") and CFTC Rule 180.1(a)(4) ("Prohibitions on the employment, or attempted employment, of manipulative and deceptive devices"). The company is vicariously liable for these violations.

To settle the charges, the company agreed to (i) cease and desist, and (ii) pay a $6.5 million civil monetary penalty.

CFTC Commissioner Dawn D. Stump expressed "serious concerns" about the CFTC expending resources to pursue this case, given that:

  • the company has not offered any derivatives products regulated by the CFTC;

  • the company is not required to be registered with the CFTC and is not itself regulated by the CFTC;

  • the company's conduct did not affect the trading of any listed derivatives product; and

  • the settled charges are based on conduct that is several years old and of a former employee who is not being charged.

Ms. Stump stated that the CFTC must remain focused on the derivatives market and clarify to the public that it does not regulate cash digital asset exchanges.

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Spoofing / Wash Trades / Manipulation
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