Coinbase pricing errors led to huge profits for thousands of users in Georgia. The U.S.-based crypto trading platform wants their money back.
Coinbase, the largest cryptocurrency trading platform in the world, may sue approximately 1,000 Georgian users for taking advantage of a pricing error.
Around 1,000 Coinbase users from countries that border Europe and Asia took advantage of the “arbitrage opportunity”, where the local currency, the lari was listed at $290 instead of $2.90 for six hours on Coinbase. This group represents only 0.001% the U.S.-based company’s users.
Coinbase informed CoinDesk that the glitch was due to a “third-party”, but did not identify the company. This incident highlights a longstanding concern financial regulators: The risk posed to institutions through external partnerships.
U.S. Comptroller Michael Hsu stated last week that “when everything is done within the bank, we know exactly whom is responsible when things break.” However, when work is divided between institutions and fintech startups that have different business models, it can lead to risk.
According to Coinbase spokespersons, the amount of money that Coinbase lost in the Georgia snafu was “immaterial.”
CoinDesk received a written statement from a Coinbase spokesperson stating that Coinbase was working with Gvinadze & Partners in order to retrieve the funds incorrectly credited.
The company representative stated that they could not comment on specific litigation or demands. “However, users who return funds that were incorrectly credited will not be subject of further legal proceedings.”
Get on the ATMs
Avtandil Koutchava, the host of “Crypto Bazari,” a Georgian television program, told CoinDesk that approximately 470 people had reached out to him about the situation. Kutchava estimates that traders could have earned tens to millions of dollars by trading with the incorrect lari rate. On that day, ATMs in Tbilisi ran out of banknotes, as traders scrambled to cash their jaw-dropping gains.
One bitcoin traded for between 5,000,000 and 6,000,000 lari (or around $1.7 million per piece), while the average price was only 55,000 to 60,000 lire in late August.
CoinDesk spoke to four traders that took advantage of the pricing glitch in a group video conference. They all said that their bank accounts were temporarily frozen after they sold crypto for lire and then withdrew fiat from their accounts. The accounts and bank cards were unfrozen several days later without any further action.
On Sept. 24, Gvinadze & Partners sent emails to all four saying that Coinbase was determined to use all legal means to recover incorrectly credited funds “as soon as possible” and warning them that if they fail to reply to the email or return the money, legal action may be taken against them.
Coinbase could not confirm that the exchange reached out the Georgian banks to request the freezing of traders’ accounts. The traders claimed that at least two of Georgia’s largest banks, Bank of Georgia (TBC) and TBC, had frozen the accounts of users who took advantage of the glitch, but then unfroze them.
CoinDesk was contacted by Tornike, a Georgian manager and amateur trader. He asked for anonymity because he sold Stellar lumens (XLM), while on vacation at Grigoleti (a small resort near the Black Sea shore).
He immediately deposited his earnings into his Bank of Georgia account. To double-check, he went to a nearby ATM to verify that the money was available to him to withdraw. Tornike stated that he tried to buy wine at a local shop, but his payment didn’t go through. His debit card was also frozen. Three days later, things changed and Tornike was allowed to use his bank accounts once again.
Blockworks, a news website, cited an email that was sent by a trader to their bank. “Hello, Coinbase transactions have been marked as suspicious and we are locking all your accounts and credit cards,” a blanket message from a bank to customers reads. Coinbase could request clawback of funds. Sorry.”
CoinDesk asked for comments by press time from neither of the banks. Gvinadze & Partners did not respond.