On August 29, about 1000 Coinbase traders based in Georgia took advantage of a pricing glitch and made significant profits. For about six hours, the local currency, lari, was priced at $290 instead of $2.90.
Users from Georgia, which is a small country on the border between Europe and Asia, make up about 0.001 percent of the total users on Coinbase, a US-based exchange.
Fault of a Third-Party, Says Coinbase
Speaking to CoinDesk about the issue, Coinbase stated that the glitch occurred due to a fault of a third party. However, the damage is done as it highlights a major concern among finance regulators.
Various agencies, like the SEC are concerned about the risks of partnering with external bodies.
Michael Hsu, US Comptroller of the Currency, said that with banks, it’s easy to know who is responsible in the event of a mishap.
But when an institution is partnering with a fintech startup that has a completely unique business model, it’s difficult to anticipate the risk.
Although Coinbase didn’t disclose how much money the company lost because of the glitch, one spokesperson described it as ‘immaterial.’
Coinbase Hinting at Legal Action against Traders
Currently, the crypto exchange is partnering with Gvinadze & Partners, a reputable law firm, to get back the improperly acquired funds. This was according to a written statement given to CoinDesk.
Hence, it’s likely that the platform will sue the 1000 traders who leveraged the glitch to credit their accounts with funds. Of course, a Coinbase representative said that they can’t yet explain the status of the litigation.
The representative did, however, say that users who return the improperly acquired funds won’t be faced with legal action.
Georgia Traders Rush To ATMs
Crypto Bazari, a Georgian TV show hosted by Avtandil Kutchava, got numerous queries from traders. According to the host, around 470 people contacted his team to ask about the situation.
Based on his estimate, traders could have made anywhere close to tens of millions of dollars on their trades because of the glitch.
In fact, on the day of the occurrence, ATMs in the capital city of Tbilisi were completely emptied out as traders hurried to withdraw their huge profits.
For instance, one Bitcoin token, which was trading for around 60,000 lari towards the end of August, was suddenly trading for 6,000,000 lari. That’s almost $1.7 million.
According to four traders who leveraged the pricing glitch, their bank accounts were frozen after exchanging their crypto for the local currency.
A couple of days later, their bank cards and accounts were unfrozen and no action was taken against them.
But on September 24, they received an email from Coinbase’s legal team. It read that they could face legal repercussions if they fail to return the funds.