Coinbase Refutes Bitcoin Cash Insider Trading Allegations

After launching an independent inquiry in December 2017 and allegations of insider trading, San Francisco-based Coinbase cleared its name and concluded no such activity was recorded.

Bitcoin Cash Trading Allegations

On July 24, 2018, Fortune learned the cryptocurrency exchange concluded investigations into possible insider trading of Bitcoin Cash by Coinbase employees before its listing on the influential exchange.

On December 20, 2018, Coinbase announced the listing of Bitcoin Cash, a controversial Bitcoin hard fork, to its limited trading portfolio.

The market responded with a massive surge in BCH’s price and reportedly gaining 64% within a few hours and reaching $9,400 for a small duration. The activity was marked after Coinbase put out a “surprise announcement” about BCH trading on GDAX, the company’s wholly-owned cryptocurrency exchange.

GDAX immediately paused all trading on the platform, deploying a “post-only” mode where orders remain unmatched citing unnatural price gyrations.

While the listing of new cryptocurrencies on popular exchanges usually causes quick price increases, the regarded “Coinbase Effect” is most pronounced, partly due to the company’s prominence and extensive user base.

However, the unusual price jump preceded the official announcement, leading to industry observers alleging the company’s employees had insider knowledge of the matter and purchased BCH before other investors.

BCH Price Surges Before Announcement

As noted, BCH prices starting increasing rapidly before any actual announcement was issued, with traders and investors noticing the price action and jumping on to trade the forked digital asset.

Now, Coinbase stated the six-month-long probe, conducted by two “well-known” law firms has been completed with no evidence of insider trading found. The law firms reportedly shared their findings with company employees in July 2018, spread over a week-long meeting.

A spokesperson was quoted saying:

“We would not hesitate to terminate an employee or contractor and/or take appropriate legal action if evidence showed our policies were violated. We can report that the voluntary, independent internal investigation has come to a close, and we have determined to take no disciplinary action.”

In December 2017, after allegations, Coinbase CEO Brian Armstrong published the company’s quality control and employee trading policy, stating all workers are under strict rules about acting on inside knowledge and face legal action if violated, apart from the contract termination.

The Aftermath

The company seemingly did not responsibly handle the listing news. At the time of BCH’s fork in September 2017, Coinbase said it would not support the currency for the near future, and users could utilize other services that did.

Later, Coinbase told customers that BCH would be launched on January 1, 2018, and then unexpectedly launched the digital asset on December 17, 2018.

While the new development clears allegations, reports stated Coinbase is not entirely in the clear for now.

Deranged users filed a class action lawsuit against Coinbase in 2018 for failing to protect customer interests and violating existing laws, with the plaintiffs seeking a substantial sum as damages.

A class-action lawsuit filed by Coinbase customers is ongoing, and seeks damage from the company for negligence and violating consumer protection laws. The CFTC is also reportedly investigating Coinbase over the BCH trading allegations.

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