Canadian Crypto Exchange Coinsquare Involved In “Wash Trading” Scandal

The notion that most cryptocurrency exchanges mislead investors with fake transaction data seemed true, as Canadian exchange, Coinsquare is believed to have practiced “wash trading” in the past.

Multiple emails and chats, as reported by Vice Media Group today, suggest that the exchange’s CEO, Cole Diamond ordered employees to conduct wash trading, an act of making fake trades to boost trading volumes. 

Coinsquare created several fake accounts and was trading different cryptocurrencies between these accounts, to generate enticing transactional records that could lure more investors to the platform. 

Vice reported that the exchange practiced wash trading on several cryptocurrency pairs such as BTC and Canadian dollars, BTC and ETH, and BTC and LTC.

Employees not comfortable

Even though Diamond pushed for the illegal practice to continue, Coinsquare’s employees did not seem comfortable with the act because it could destroy their careers. 

As reported, some messages exchanged between employees read: 

[He] said he didn’t approve, but that he did it because Cole asked him to.” While another message indicating that Cole asked the exchange’s workers to practice wash trading reads: “The decision to continue wash trading was final by Cole.

Along the line, a senior staff instructed the workers in the mail to stop using the term “wash trading” while conversing, as it could incriminate the company in the future. 

The code for the practice was disabled last year by an employee who feared that regulators from the country’s financial watchdog, Ontario Securities Commission (OSC), could catch them in the act. 

However, Diamond would not have any of it as he instructed in a mail that the practice should continue. 

“Turn back on, please,” Cole replied.  

Wash trading is illegal

Wash trading of any asset is considered illegal in most countries, including Canada and the United States. Regulators believe the practice could influence the price of the assets involved and lure unsuspecting investors into believing that an exchange is active. 

According to excerpts from OSC law under which Coinsquare operates, no company or person shall act in a way that “results in or contributes to a misleading appearance of trading activity in, or an artificial price for, a security, derivative or underlying interest of a derivative.”

With the leaked documents indicting Coinsquare, the OSC may be forced to swing into action, which could affect other exchanges. The regulator had recently concluded a 10-months investigation on defunct crypto exchange QuadrigaCX wherein the OSC branded the exchange as an old-fashioned fraud in modern technology. 

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