Coinsquare admits to wash trading, executives to step down

Key Coinsquare executives are stepping down from their posts after the Toronto-based digital currency exchange admitted to using artificially inflated trading volumes to make its platform look more popular.

The Ontario Securities Commission (OSC) filed the allegations of illegal practice—known as wash trading—last week, accusing CEO Cole Diamond, founder and President Virgile Rostand, and former CCO Felix Mazer of intentionally manipulating markets as well as having “authorized, permitted or acquiesced in this conduct” from company staff.

As part of Coinsquare’s settlement with OSC, Diamond and Rostand will resign from their positions and pay C$1 million (US$750,000) and C$900,000 (US$670,000) in penalties, respectively. Coinsquare and the two executives will also pay C$300,000 (US$223,000) for the regulator’s investigation costs.

Diamond and Rostand are also banned from acting as “registrants and directors or officers of a registrant” for three years, or from holding a position that requires registration for three and two years, respectively. Mazer, who had already stepped down as Coinsquare’s CCO and paid C$50,000 (US$37,000) to OSC, has a similar ban in place for one year.

Investigators said Diamond encouraged staff to engage in wash trading practices, while Rostand developed code to conduct the fraudulent activity.

As the firm’s chief compliance officer, Mazer is accused of having “failed to take steps that a reasonable CCO would have taken” to identify and flag the activity during his employment at the firm between May 2018 and June 2020.

According to the regulator, the illegal trading activity accounted for as much as 90% of Coinsquare’s trading volume from July 2018 to December 2019, casting significant doubt over the true value of the company.

The OSC said that wash trades numbered 840,000 over the period, with as much as US$5.4 billion in BTC traded artificially through the practice on the Coinsquare exchange. Further, when a whistleblower tried to bring the practice to light, the company carried out reprisals against them.

The damning charge sheet from the OSC also finds that the firm concealed its activities from the regulator while attempting to apply for a license for a subsidiary, Coinsquare Capital Markets Ltd.

The allegations first came to light in a leak to Vice Magazine, in which emails, Slack messages and other sources of information were passed on to journalists.

Coinsquare’s case and subsequent settlement is the latest casualty as Canada goes regulation-heavy and deems all digital currency exchange activities as dealings in securities.