Crypto exchange Coinbase will pay $6.5 million in a settlement with the Commodity Futures Trading Commission (CFTC) over allegations the exchange “self-traded” digital assets.

According to a consent order published by the commodities regulator Friday, Coinbase self-traded a small amount of cryptocurrency between 2015 and 2018 through two of its automated trading programs. A now-former employee of the exchange also allegedly “wash traded” litecoin during that time period, as well.

One of these programs was designed to project how much of any given cryptocurrency Coinbase was expected to sell on its retail brokerage app. The system would then purchase the suggested amount of cryptocurrency through its professional trading division (GDAX, now known as Coinbase Pro) and hold it in the exchange’s treasury.

Self-trading is when “the same entity takes both sides of the trade,” a report by the U.S. Treasury Department and several financial regulators said in 2014. This type of market activity could be likened to wash trading, where an entity might artificially pump up the trading volume of an asset.

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.

Coinbase disclosed the investigation’s existence in its Form S-1, which the company filed ahead of its planned listing on Nasdaq.

The CFTC began investigating “trades made in 2017 by one of the company’s then-current employees,” according to the S-1. The investigation also included “the design and operation of certain algorithmic functions related to liquidity management on the company’s platform.”

While the CFTC has conducted other investigations into Coinbase, according to the S-1, including into an Ethereum “market event” and the bitcoin cash listing, this is the only investigation the exchange anticipated would have a “material adverse effect” on its operations.

In a concurrent statement published with the settlement, CFTC Commissioner Dawn Stump wrote that while she agreed with the regulator’s findings, she wanted to ensure the public is aware that the CFTC doesn’t regulate spot exchanges.

Coinbase doesn’t offer any derivatives products and is therefore not registered with the agency, she wrote. The activity at the heart of Friday’s enforcement action also doesn’t affect any derivatives covered by the agency.

“The settled charges are based largely on conduct that is several years old, has not been repeated, and in the case of the charge of secondary liability, is based on conduct by an employee who left Coinbase years ago and who is not being charged,” she added.

In a statement shared with CoinDesk, a Coinbase spokesperson said the company neither admits nor denies the findings, but said the order does not find any Coinbase customers were harmed.

“We believe clear, common-sense regulations are needed to provide a stable trading environment for all market participants. Because of this, we proactively engaged with the CFTC throughout their investigation, and we believe that our conversations were constructive and contributed to an outcome that is satisfactory for both parties,” the spokesperson said.

UPDATE (March 19, 2021, 22:00 UTC): Added statements from Coinbase and CFTC Commissioner Dawn Stump.

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