Coinsquare CEO Cole Diamond and Chairman Virgile Rostand will resign and pay a $1.6 million fine as part of an agreement with the Canadian regulator, the Ontario Securities Commission (OSC).
According to an announcement by the OSC following a hearing held on July 21, Diamond and Rostand have agreed to waive their charges on the crypto exchange and will pay about USD 750,000 and USD 670,000 in fines, respectively. Coinsquare and the disgraced duo will also be charged USD 223,000 in expenses for the investigation.
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The Canadian regulator said Diamond and Rostand are effectively prohibited from resuming management of Coinsquare for at least three years as part of the agreement and cannot act as „enrollees and directors or officers of an enrollee. Chief Compliance Officer (COO) Felix Mazer had already resigned from his post and paid USD 37,000 to the CSO, but will be similarly banned for one year.
The agreement between Coinsquare, Diamond, Rostand and Mazer comes after the Canadian regulator alleged on July 16 that the exchange had engaged in market manipulation, artificially inflating its trading volume by executing market transactions free of charge on its own orders. This practice creates the appearance of large trading activity without any assets changing hands and is an industry-wide problem.
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„Despite several employees expressing concern about inflated trade volumes, Coinsquare not only stood by its practice, but lied to investors about it and retaliated against an informant,“ said Jeff Kehoe, Director of the CSO’s enforcement arm. „Being an innovator in our capital markets is not a free pass to ignore Ontario’s securities law.
Admitting to Bad Deeds
As part of its agreement with the CSO, Coinsquare has admitted that it participated in market manipulation by reporting inflated trade volumes and that it made „misleading statements to hide it“.
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Between July 17, 2018 and December 4, 2019, Coinsquare performed approximately 840,000 wash operations with an aggregate value of 590,000 Bitcoin (BTC), USD 5.5 billion at the close of this edition. These operations represented more than 90% of the volume reported in the exchange.
The problem of market manipulation with this type of operations is endemic in the cryptomoney industry. According to a study by Bitwise Asset Management, presented to the U.S. Securities and Exchange Commission in March 2019, up to 95% of the Bitcoin Loophole market volumes reported to CoinMarketCap could have been the result of laundering transactions. The Blockchain Transparency Institute reported in September last year that the false volume of BTC trading was approximately 50%.