Manipulation, Fraud and Abuse: New York Attorney General Issues Stern Warning Against Cryptocurrency Exchanges

The New York State Attorney General’s office has ratcheted up its war of words against cryptocurrency exchanges, warning consumers of the myriad of risks they face in depositing money on these platforms.

Crypto Exchanges at Risk of Manipulation

In a lengthy report on the “Virtual Markets Integrity Initiative,”  New York’s Attorney General argues that online cryptocurrency exchanges are vulnerable to manipulation, fraud and other types of abuse. Consumers of these platforms therefore “face significant risks” from hackers and the exchange operators themselves, some of which have been known to exploit “deceptive and predatory practices, market manipulation, and insider abuses.

“[V]irtual asset trading platforms now in operation have not registered under state or federal securities or commodities laws,” the report says. “Nor have they implemented common standards for security, internal controls, market surveillance protocols, disclosures, or other investor and consumer protections. Accordingly, customers of virtual asset trading platforms face significant risks.”

The report, which examines ten cryptocurrency exchanges operating in the U.S. and internationally, concludes a six-month investigation that was initiated by New York Attorney General Eric T. Schneiderman. Back in April, Schneiderman sent letters to 13 exchanges requesting information on their operations and internal controls.

Several Exchanges in the Hot Seat

At least four cryptocurrency exchanges were outed by the Attorney General’s office as being most problematic and possibly operating illegally in the state of New York. Not coincidentally, these exchanges refused to participate in the Attorney General’s request for information.

The report reads:

“Customers should be aware that the platforms that refused to participate in the OAG’s Initiative (Binance, Gate.io, Huobi, and Kraken) may not disclose all order types offered to certain traders, some of which could preference those traders at the expense of others, and that the trading performance of other customers on those venues could be negatively affected as a result.”

According to Forbes, a representative from the Attorney General’s office has referred three of these exchanges – Binance, Gate.io and Kraken – to the New York State Department of Financial Services “for possibly operating unlawfully in New York.”

Kraken has been on the hot seat ever since the company’s CEO publicly denounced the Attorney General’s request for more information. In a series of tweets, CEO Jesse Powell called the request “insulting” and likened it to “abuse.”

He added: “The resource diversion for this production is massive. This is going to completely blow up our roadmap! Then I realized we made the wise decision to get the hell out of New York three years ago and that we can dodge this bullet.”

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

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Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi