The U.S. Attorney’s Office for the Southern District of New York announced that three people have been charged in the first cryptocurrency insider trading tipping case in the nation.
A former product manager at cryptocurrency exchange platform Coinbase, Ishan Wahi, along with his brother, Nikhil Wahi and friend Sameer Ramani have been charged with wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets and wire fraud conspiracy. The parties allegedly planned to use confidential information from Coinbase about the cryptocurrency assets that were set to be listed on the platform’s exchanges.
According to prosecutors, 32-year-old Ishan Wahi used his role with Coinbase to obtain confidential information about upcoming announcements of new crypto assets that would be added to Coinbase’s exchange. He passed this information to Nikhil Wahi and Ramani, who then acquired the assets with Ethereum blockchain wallets. They traded on no fewer than 14 occasions ahead of announcements by Coinbase in the time period from June 2021 to April, amassing more than $1.5 million in illicit gains as the digital assets’ prices rose.
The U.S. Attorney in Manhattan, Damian Williams, said in a statement that these charges should remind everyone that “Web 3 is not a law-free zone.”
He added: “Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street. And the Southern District of New York will continue to be relentless in bringing fraudsters to justice, wherever we may find them.”
Ishan Wahi allegedly purchased a one-way plane ticket to India after being summoned by a security director at Coinbase for a meeting, but law enforcement stopped him from boarding the plane. Ishan and Nikhil Wahi were arrested yesterday morning in Seattle; their lawyers did not respond to requests for comment. Ramani is currently at large.
Coinbase Chief Security Officer Philip Martin noted the company shared the findings of an internal investigation into the men’s trading with prosecutors.
He tweeted: “We are committed to doing our part to ensure that all market participants have access to the same information.”
Coinbase CEO Brian Armstrong tweeted that the company started an internal probe in April after finding out about potential insider trading and terminated the employee. Coinbase was not implicated in any wrongdoing by federal prosecutors, and Williams thanked the firm for their cooperation in his statement.
Nevertheless, the case is causing tensions to rise between Coinbase and the Securities and Exchange Commission, which contends that many of the digital tokens listed on crypto exchanges like Coinbase do meet the legal definition of securities and that these companies need to register with the SEC so they can be monitored for fraud and abuse. Coinbase maintains that the assets on its platform do not qualify as securities.
The SEC announced on Thursday that it will be suing the three men for violations of securities law on the grounds that at least nine of the more than two dozen digital assets they purchased and sold in their scheme were securities.
In a statement, SEC enforcement chief Gurbir Grewal said the economic realities of an offering carry more weight than its labels. “In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase.”
In its complaint, the SEC named 9 tokens and provided a 38-page analysis of how they meet the definitions of securities under federal law.
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