Coinsquare faked 90% of its trading volume; the OSC made its founders pay

Coinsquare, one of Canada's largest crypto exchanges, reported inflated volumes from July 17, 2018 to December 4, 2019: roughly 840,000 wash trades, an estimated 590,000 bitcoins, over 90% of its reported volume. The trades — buys and sells between accounts the exchange controlled, with no economic substance — were directed by co-founder and CEO Cole Diamond and enabled by an algorithm written by co-founder and president Virgile Rostand. Diamond began directing the practice shortly after approaching the OSC's LaunchPad, the regulator's program for startups entering securities markets.

An employee hired in November 2018 for the automated trading strategies team discovered the wash-trade algorithm between March and October 2019 and raised concerns with senior management, including Rostand and Diamond. Rostand deactivated the function once, then switched it back on when Diamond ordered it. The employee was told wash trading would taper off — and that if he kept raising concerns it would affect his employment. After he repeated them, Coinsquare formally terminated him.

In June 2020, Vice published leaked internal documents: several employees were uncomfortable with the practice, one email read 'the decision to continue wash trading was final by Cole,' and senior staff asked employees to stop using the term 'wash trading' in internal correspondence to avoid leaving a paper trail. On July 16, 2020 the OSC filed a statement of allegations; five days later a panel approved a settlement with the company and its three executives.

Coinsquare admitted market manipulation through reported volume and misleading clients. Diamond, who authorized the practice and admitted retaliating against the whistleblower, paid a $1 million administrative penalty; Rostand paid $900,000; each co-founder paid an extra $50,000; former chief compliance officer Felix Mazer, faulted for failing his 'critical' role, paid $50,000; and the company paid $200,000. Diamond, Rostand and Mazer agreed to resign and accepted bans from executive and director roles at regulated market participants of three, two and one years respectively.

Roughly 840,000 wash trades (about 590,000 BTC) made up over 90% of reported volume; $2.25M in total penalties; the CEO agreed to resign and serve a three-year ban

Volume was the product: wash trades made up over 90% of the volume used to attract customers

The president built the fake-trade algorithm, and when he switched it off, the CEO ordered it back on

Staff were told to stop writing the term 'wash trading' to avoid creating a paper trail

The whistleblower was warned his job was at risk, then fired — making it the OSC's first reprisal case since 2016

Volume is an exchange's reputation; fake volume is fake reputation. Trading with yourself to look busy is marketing a lie — and firing whoever says so turns it into an enforcement case.

The OSC ordered Coinsquare to replace its CEO and CCO within 90 days, create an independent board and an independent whistleblower program, and pursue IIROC compliance, after which it could re-apply for dealer registration and alternative trading system status. Enforcement director Jeff Kehoe called it an important milestone — the OSC's first reprisal action since whistleblower protections entered Ontario securities law in 2016. Coinsquare took full responsibility and said registration was its priority, telling the regulator its leaders had run no exchange before.