FManhattan federal prosecutors brought in their first case of insider trading in digital coins. They charged a former Coinbase Global Inc. product manger with leaked information in order to help his brother, and friend, buy tokens right before the exchange listed them.
Ishan wahi, who was responsible for listing Coinbase units focused on investing products, was taken into custody Thursday. It follows extensive investigations involving both the Securities and Exchange Commission and the Southern District. The SEC also alleged Wahi violated the agency’s anti-fraud rules.
“Today’s charges are a further reminder that Web3 is not a law-free zone,” Manhattan US Attorney Damian Williams said in a statement. “Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street.” He added that Coinbase had cooperated with the probe.
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Coinbase lets Americans exchange more than 150 tokens. Many of these have recently been added to Coinbase. Because of the platform’s status as the US’s largest crypto exchange, coins can often see a rush of interest — and a surge in price — immediately after being included.
According to New York charges, Wahi tip-off his brother Nikhil Wahi and friend Sameer Rami when the tokens were being listed by the exchange. The government claims that Nikhil Wahi, Ramini and Ramini used this information to trade hundreds of tokens between June 2021 and April 2022 at a profit exceeding $1 million.
The three men were charged with conspiracy to wirefraud and wire fraud by the prosecution. They were also accused of insider trading by the SEC.
Andrew St. Laurent is an attorney for Ishan wahi (32). He has declined to comment. An attorney for Nikhil Wahi, 26, who was also arrested today, didn’t respond to a request for comment. Ramini, 33, remains at large, according to the US Attorney’s office.
“Any illicit behavior is something we take super seriously. We have zero tolerance for it,” said Paul Grewal, Coinbase’s chief legal officer. According to Grewal, Coinbase conducted an immediate investigation into a potential insider trading concern and sent Wahi unpaid administrative leaves. Grewal confirmed that Wahi had been officially dismissed on July 15th.
Indictment
After complaints on social media regarding unusually timed investments in tokens listed on Coinbase, Manhattan prosecutors began their investigation. Wahi, who was barred from entering the country by authorities in May, gave birth to the investigation.
In an internal investigation of suspicious trading activities, Coinbase organized a May 16 interview with Wahi at Seattle. According to the prosecutors. Wahi had purchased an 11-hour flight to New Delhi on the night before.
The next day, about 35 minutes before the interview was scheduled to begin, Wahi emailed Coinbase’s director of security operations to say that he “had to fly back home” but that the meeting could be rescheduled, according to the indictment. In the 11-hour period, Wahi called and texted his brother and Ramani, sending them images of the messages he had received from Coinbase’s internal security director.
Wahi was not allowed to board his plane when law enforcement officers arrived at the airport. Despite his apparent willingness to reschedule the meeting for later in the week or the following week, he brought to the airport an “extensive array of belongings, including, among other items, three large suitcases, seven electronic devices, two passports, multiple other forms of identification, hundreds of dollars in US currency” and other personal effects, according to the filing.
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SEC Complaint
The SEC’s complaint, filed Thursday in federal court in Seattle, alleges that Ishan Wahi violated securities laws by repeatedly providing material, non-public information to his brother and friend by text and phone calls using a foreign phone. It said that its case against Ramini, the Wahi brothers, and Ramini was its only one for insider crypto trading.
Nikhil Wahi and Ramani repeatedly traded on that information and recklessly or “consciously avoided knowing” that Ishan was breaching his duty of care to Coinbase in providing the information, according to the complaint. Market regulator requested that they be punished with civil and criminal penalties, as well as disgorgement of unknown amounts.
The SEC said that it was deeming nine of the digital tokens the men traded in to be “securities”– an important designation for the agency as it continues to exert its authority over the volatile digital asset market.
“We are not concerned with labels, but rather the economic realities of an offering,” SEC Enforcement Director Gurbir Grewal said in a statement. “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,” he said.
According to the SEC, Coinbase has policies that restrict tipping or trading by employees based on confidential information.
In April, Coinbase Chief Executive Officer Brian Armstrong said in a blog posting that the company had “received reports of people appearing to buy certain assets right before we announced they’d be listed.” Without providing specific examples, Armstrong added that there’s a chance that someone at the firm could leak information to outsiders and that it would hunt for misconduct and make referrals to authorities for possible prosecution if anything was found.
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American officials have increased their oversight of the illegal grey area industry. Insider trading is a problem.
Coinbase decided last year, after years of being cautious about listing tokens for trading. This was to regain some market share lost to rival Binance Holdings Ltd.
While Coinbase wasn’t charged, the cases could lead to additional scrutiny for the platform. The US Attorney acknowledged the cooperation of the company in this investigation.
SEC Chair Gary Gensler has long argued that many cryptocurrencies fall under the regulator’s jurisdiction. He’s also said that digital-asset exchanges should register with the agency because they offer trading in those products. Coinbase and other crypto platforms haven’t done so thus far.
Updates on the case starting at paragraph 2.
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