Ex-Coinbase Manager, Two Others Indicted in Alleged $1.1M Crypto Insider Trading Scheme
Top line
US authorities on Thursday arrested a former Coinbase employee and two others for allegedly using confidential information from the popular crypto brokerage to commit insider trading – marking the first case of its kind in the nascent cryptocurrency industry.
In one case, the ex-boss is said to have called his brother “just minutes” after receiving … [+]
Keywords
The US Securities and Exchange Commission on Thursday announced insider trading charges against Ishan Wahi, a former Coinbase product manager, his brother and a friend, alleging that Wahi repeatedly told his brother, Nikhil Wahi, and a friend, Sameer Ramani, about the timing and content in upcoming token listings on the platform.
In a parallel action, the Justice Department charged the three with wire fraud conspiracy and wire fraud, saying in a statement that Nikhil Wahi obtained the confidential information from a private Coinbase messaging channel reserved for a “small number” of employees with direct involvement in the listing process; they were arrested in Seattle Thursday morning.
As chief product officer, Nikhil Wahi helped coordinate the platform’s public listing announcements, including which cryptoassets or tokens would be made available for trading, and the SEC said he was engaged in the scheme from at least June 2021 until April 2022 despite Coinbase warning its employees not to act on the basis of the confidential information.
Ahead of the announcements, Nikhil Wahi and Ramani allegedly bought at least 25 crypto assets — at least nine of which were securities — and then sold them shortly after the announcements, generating more than $1.1 million in illegal profits as part of the scheme, the SEC alleged.
In one instance, Ishan allegedly called Nikhil “just minutes” after receiving confirmation that the Ethereum-based POWR token would be listed on Coinbase, allowing Nikhil to buy around $7,000 of the crypto asset two minutes before the announcement and then “almost immediately ” realizing a profit of $3,050 from the sale of tokens when the announcement was published.
Decisive quote
Although the classification of certain cryptocurrencies as securities has long been debated, the SEC’s Gurbir Grewal said in a statement that “the economic realities … confirm that a number of the cryptoassets involved are securities,” giving the agency jurisdiction, promising to double down on enforcement actions involving cryptocrime “regardless of the label on the securities involved.”
Chief critic
In a blog post following the indictment, Coinbase CEO Brian Armstrong hit back at the SEC’s claim that some of the crypto assets are securities, noting that the DOJ did not prosecute securities fraud, saying, “No assets listed on our platform are securities, and The SEC charges are an unfortunate distraction from today’s appropriate law enforcement efforts.” He also noted that the company conducted a swift investigation into the matter after some people made allegations of front-running.
Surprising fact
Although the group allegedly attempted to hide its purchases by using accounts held in other people’s names and transferring funds through multiple anonymous blockchain wallets, the suspicious trading drew the attention of Coinbase’s director of security, the SEC wrote in its complaint. On May 11, the company emailed Ishan to schedule an interview with the legal department in connection with an “ongoing corporate investigation into Coinbase’s asset listing process.” Ishan then sent a screenshot of the interview request to his co-conspirators and said he needed to talk to them asap. He never showed up for the interview and instead tried to “fly back to India overnight,” the SEC complaint alleges.
Key background
The SEC called Thursday’s enforcement action the first involving insider trading in cryptocurrency, but federal prosecutors have waded into the nascent digital asset space before. Last month, Nate Chastain, a former high-ranking employee at buzzy nonfungible token (NFT) marketplace OpenSea, was indicted on fraud and money laundering charges. Prosecutors alleged that Chastain, then chief product officer at OpenSea, engaged in insider trading by buying dozens of NFTs before they were featured on OpenSea’s website and then selling them shortly after for between two and five times the purchase price.
Further reading
Former OpenSea employee indicted for fraud over insider trading in NFTs (Forbes)
