Ex-Coinbase employee and 2 others charged with insider trading in crypto assets

Federal authorities filed criminal and civil charges against a former Coinbase employee and two other men in an insider trading case involving confidential information about cryptocurrency assets that were about to be listed on the Coinbase exchange, according to charging documents filed Thursday.

The three men were involved in trades over a 10-month period using information about 14 listings on Coinbase that generated about $1.5 million in illegal profits, according to federal prosecutors in Manhattan. The men were charged with three counts of wire fraud and conspiracy to commit wire fraud.

The case was the first time authorities had brought criminal charges of insider trading involving cryptocurrency assets, said Damian Williams, the U.S. attorney for the Southern District of New York.

Prosecutors, as well as the Securities and Exchange Commission in civil charging documents, said Ishan Wahi, who at the time was part of a Coinbase team that listed assets on the exchange, passed on confidential information about when some cryptocurrency assets would be listed to his brother, Nikhil Wahi, and his brother’s friend, Sammer Ramani.

Nikhil Wahi and Mr. Ramani used that information to buy the assets before Coinbase announced it would go public, authorities said. After the announcement, the men sold the assets at a profit.

The alleged scheme came to light after Coinbase launched an internal investigation in April in response to a post on Twitter about unusual trading.

Ishan Wahi had booked a flight to India just before he was to be interviewed by the company as part of the investigation. Authorities said he also tipped off his brother and his brother’s friend about the interview. Mr. Wahi and his brother were arrested Thursday morning in Seattle. Mr. Ramani remains at large, authorities said.

Lawyers for the Wahi brothers did not immediately respond to requests for comment. Mr. Ramani could not immediately be reached for comment. The SEC said Mr. Ramani lives in Houston, but it believed he was in India.

The charges suggest federal authorities are prepared to crack down on illegal trading in the world of digital assets in much the same way they have pursued such crimes in the stock, bond and commodity markets.

“Our message with these charges is clear: Fraud is fraud is fraud, whether it happens on the blockchain or on Wall Street,” said Mr. Williams, the U.S. attorney.

The SEC said the cryptocurrency assets listed on Coinbase’s exchange are considered securities and can therefore be regulated like stocks or bonds — a position many in the digital currency world have opposed.

Last month, federal prosecutors brought an insider trading case involving the use of confidential information to buy another type of digital asset, non-fungible tokens, or NFTs. In that case, authorities charged a former employee of an NFT marketplace with misusing confidential information about the timing of public listings for the digital tokens.

The two cases “are just the beginning of the DOJ’s crackdown on insider trading in the crypto space,” said Ian McGinley, a former Justice Department prosecutor. “Both of these cases are for relatively small amounts, but the DOJ brought them to send a message — they’re watching.”

In a post on Coinbase’s website, the company’s chief executive, Brian Armstrong, said Coinbase had turned over information about the three men to the Justice Department and had terminated Mr. Wahi’s employment. “We have zero tolerance for this type of misconduct and will not hesitate to take action against any employee when we find wrongdoing,” he wrote.

In an interview, Paul Grewal, Coinbase’s general counsel, said the company has a team of 50 investigators, including former federal prosecutors, monitoring suspicious activity on the platform. “These signals we’re looking for are extremely weak in a very loud, complicated system,” he said.

The impetus for the investigation of Mr. Wahi was one chirping from an account under the name Cobie who used public transaction records to identify the suspicious trade.

When the charges were filed on Thursday, the account — which is reportedly run by crypto influencer Jordan Fish — struck a modest note.

“Confounding that people are actually reading tweets from this twitter account in the real world and then doing things about them,” Cobie wrote.