INSUBCONTINENT EXCLUSIVE:
By Matt Robinson and Tom SchoenbergThe Justice Department has opened a criminal probe into whether traders are manipulating the price of
Bitcoin and other digital currencies, dramatically ratcheting up US scrutiny of red-hot markets that critics say are rife with misconduct,
according to four people familiar with the matter.
The investigation is focused on illegal practices that can influence prices -- such as
spoofing, or flooding the market with fake orders to trick other traders into buying or selling, said the people, who asked not to be
identified because the review is private
Federal prosecutors are working with the Commodity Futures Trading Commission, a financial regulator that oversees derivatives tied to
Bitcoin, the people said.
Authorities worry that virtual currencies are susceptible to fraud for multiple reasons: skepticism that all
exchanges are actively pursuing cheaters, wild price swings that could make it easy to push valuations around and a lack of regulations like
the ones that govern stocks and other assets.
Bitcoin extended its Thursday declines after Bloomberg News reported the investigation, and
was down 3 per cent to $7,409 as of 9:32 am London time
Japan and the Philippines to regulate them, contributing to a slump that has sent Bitcoin below $8,000 this year
Still, digital coins continue to be a global investment craze, drawing legions of loyalists to industry conferences, generating celebrity
endorsements and increasingly attracting the attention of Wall Street.
Traders ColludingThe illicit tactics that the Justice Department is
looking into include spoofing and wash trading -- forms of cheating that regulators have spent years trying to root out of futures and
equities markets, the people said
In spoofing, a trader submits a spate of orders and then cancels them once prices move in a desired direction
Wash trades involve a cheater trading with herself to give a false impression of market demand that lures other to dive in too
Coins prosecutors are examining include Bitcoin and Ether, the people said.
A Justice Department spokesman declined to comment and CFTC
starting the year below $1,000 -- has been a lure for mom-and-pop investors
For instance, the Securities and Exchange Commission has opened dozens of investigations into initial coin offerings, in which companies
sell digital tokens that can be redeemed for goods and services, due to suspicions that many are scams.
Cryptocurrency trading is fragmented
coins rather than futures linked to them
But if the agency finds fraud in spot markets, it does have authority to impose sanctions.
Fraud TargetThe limited oversight of crypto
trading makes it a target for crooks, said John Griffin, a University of Texas finance professor who has studied manipulation, including in
for getting rich off Facebook Inc., hired Nasdaq Inc
last month to conduct surveillance of digital coins trading on their exchange, Gemini Trust Co
Cameron and Tyler Winklevoss have also urged trading platforms to band together to form a group that would serve as a self regulator for the
industry.
Some market participants have alleged that crypto manipulation is rampant
orders without executing them.
