The New York Attorney General’s office dropped a bombshell report this week in which it announced its findings of cryptocurrency exchange manipulation. Its published document said that crypto exchanges do not have the same security measures as traditional markets, making them highly susceptible to manipulation. The report could have influence over larger regulatory battles with the SEC.
According to this study, cryptocurrency trading platforms operate with lower security standards than traditional financial markets. This is quite important for the market since the U.S. Securities and Exchange Commission (SEC) delayed the approval of a crypto ETF due to manipulation in the market.
Attorney General Barbara Underwood said on the matter:
“As our report details, many virtual currency platforms lack the necessary policies and procedures to ensure the fairness, integrity, and security of their exchanges.”
Additionally, the attorney general requested the New York’s Department of Financial Services (NYDFS) to tighten their controls in the state. Apparently, there might be three different exchanges illegally operating in New York.
This report has been presented month after launching a controlling campaign in the state. The Virtual Markets Integrity Initiative asked 13 platforms to provide information about their operations. There were four platforms that did not participate in the initiative. They explained that they were not operating with users from New York.
Furthermore, the document states that there are some platforms that are not properly audited. Indeed, they do not have a good and consistent approach to independently audit virtual currencies in their possession.
Moreover, the report found that platforms do not have the necessary tools to avoid manipulation on their platforms.
The report informed:
“Platforms lack robust real-time and historical market surveillance capabilities, like those found in traditional trading venues, to identify and stop suspicious trading patterns.”
The SEC has decided to delay several bitcoin ETFs due to the fact that the market could be subject to manipulation. Until now, there is no clear signal from exchanges to change this situation.
By the end of the current year, the Intercontinental Exchange (ICE) could launch a trading platform specifically designed for financial institutions. With it, they want to tackle fraud in the markets and provide institutional-grade services to interested investors.
Kraken Challenges The Findings
One of the leading crypto exchanges in the world Kraken has offered a scathing response to the New York City Attorney General Barbara D. Underwood for malpractice allegations.
Earlier this year in April, the AG asked thirteen leading crypto exchanges to cooperate in an inquiry titled ‘Virtual markets Integrity Initiative.’ The survey focused on three areas; customer fund protection, conflicts in interest and scrutiny on abusive trading activities.
Of the thirteen, three exchanges opted not to engage in the survey; Kraken, Binance and Gate.io. Now, in a report published on September 18, Underwood has criticised the three platforms. She has specifically targeted Kraken who at the time chose to make an official statement saying they would not participate in the Initiative. According to the AG, this was very suspicious.
In the report, Underwood said her office had referred the three platforms to the New York State Department because they may be operating unlawfully in New York.
Now Kraken has taken to Twitter to offer a response to the comments made by the AG. The platform says that the report coincided with the expiration of the CBOEs futures contract and they are grateful for the revelations published.
“Thanks to the NY taxpayer for funding this research — saved our Product team a lot of time, and we got some interesting non-public info on our competitors. Excellent overview of issues and a nice list of ‘Questions Customers Should Ask’ on pg 32.”
The platform added that people should stand against unprofessional and malicious implications. They believe the AG accuses them of illegal operations because they opted out of the Inquiry. They consider the AG’s case to be based on public opinion now that they don’t operate in New York anymore.
The platform in a separate tweet asks “Who traded on insider information and what is being done to prevent manipulation by @NewYorkStateAG employees? Quis custodiet ipsos custodes?” (‘Quis custodiet ipsos custodes’ means ‘Who watches the watchers’.)
Jessey Powell, the CEO of Kraken aired his opinion on the AG comparing it to an abusive and controlling ex.
“NY is that abusive, controlling ex you broke up with three years ago but they keep stalking you, throwing shade on your new relationships, unable to accept that you have happily moved on and are better off without them. #getoverit”
He added that the inquiry is an abuse of the platform and his team made the right decision when they decided to shift out of New York.
Carlos is an international relations’ analyst specializing in cryptocurrencies and blockchain technology. Since 2017, Carlos has written extensively for UseTheBitcoin and other leading cryptocurrency sites; with over 2,000 articles published.