US authorities arrest former Coinbase CEO, alleging insider trading in crypto

by · July 21, 2022

US authorities have charged three people with conspiracy to commit wire fraud and wire fraud in connection with a scheme to commit insider trading using crypto, one of whom was a former product manager at Coinbase Global.

In an announcement Thursday, the U.S. Attorney’s Office for the Southern District of New York, in conjunction with the New York Field Office of the Federal Bureau of Investigation, said it had filed charges against former Coinbase Global Product Manager Ishan Wahi, as well as his brother Nikhil Wahi and colleague Sameer Ramani. The trio allegedly used confidential information Ishan obtained from Coinbase regarding which tokens would be listed on the exchange to make approximately $1.5 million in profits from trading 25 different cryptocurrencies.

According to the authorities, Ishan was privy to certain information about the listing of cryptocurrencies on exchanges controlled by Coinbase in his position as product manager from August 2021 to May 2022, a period that included the launch dates of the tokens. The US attorney’s office alleged that from June 2021 to April 2022, Ishan provided information related to the launch date of tokens to his brother or Ramani to invest in the cryptocurrencies before an expected price jump due to a major exchange such as Coinbase listing the asset. The indictment specifically cited $7,000 in profits from trading with Tribe (TRIBE), $13,000 from Alchemix (ALCX), Gala (GALA), Ethereum Name Service (ENS), and Powerledger (POWR), and $900,000 from XYO.

The trio allegedly used the insider trading scheme on at least 14 separate Coinbase public listing announcements, using multiple Ethereum blockchain wallets to make and transfer the purchases, and accounts on centralized exchanges in other people’s names. Authorities arrested Ishan and Nikhil in Seattle on Thursday while Ramani is at large.

“Although the allegations in this case relate to transactions made in a crypto exchange – rather than a more traditional financial market – they still constitute insider trading,” said FBI Assistant Director Michael Driscoll.

The US Securities and Exchange Commission also announced its own parallel charges against the two Wahis and Ramani, claiming that at least 9 of the 25 assets the trio allegedly insider traded were securities that had netted them $1.1 million in gains – POWR, Kromatika ( KROM), DFX Finance (DFX), Amp (AMP), Rally (RLY), Rari Governance Token (RGT), DerivaDAO (DDX), LCX and XYO. The regulator filed a complaint alleging that the three individuals violated the anti-fraud provisions of the Securities Act. The SEC said it was seeking a permanent injunction, disgorgement and civil penalties.

“We are not concerned with labels, but rather the economic realities of an offering,” said SEC Enforcement Director Gurbir Grewal. “In this case, these facts confirm that a number of the cryptoassets at issue were securities and, as alleged, the defendants typically engaged in insider trading prior to listing on Coinbase.”

Related: The SEC is reportedly starting an investigation into insider trading at exchanges

Many in the crypto community became aware of some of the alleged events in the case in April, when online experts discovered that several Ethereum wallets had purchased large amounts of six tokens, leading to allegations of insider trading ahead of a major listing announcement by Coinbase. CEO Brian Armstrong said at the time that “there is always the possibility that someone at Coinbase, knowingly or unknowingly, could leak information to outsiders who engage in illegal activity” and the exchange would conduct investigations and coordinate with outside law firms if necessary:

“If these investigations show that a Coinbase employee has in any way aided or abetted any harmless activity, those employees will be immediately terminated and referred to the relevant authorities (potentially for criminal prosecution).”

The US attorney’s office reported that Coinbase’s director of security operations contacted Ishan on May 11 to arrange a meeting related to the exchange’s asset listings. Ishan attempted to board a one-way flight to India ahead of the scheduled meeting on May 16, but was stopped by police.

According to a Thursday tweet from Coinbase Chief Information Security Officer Philip Martin, the exchange made sure of Wahi’s and Ramani’s information to authorities following an internal investigation. A company blog post stated that Coinbase took “allegations of misuse of company information very seriously” and had “zero tolerance for this type of misconduct.” However, while the company appeared to support SDNY’s actions in charging the three individuals, it pushed back against the SEC labeling 9 tokens as securities:

“No assets listed on our platform are securities, and the SEC charges are an unfortunate distraction from today’s appropriate law enforcement.”

At the time of publication, Ishan’s LinkedIn profile was not publicly visible and his Twitter account was listed as protected. In a March blog post for Coinbase, the former chief product officer wrote about efforts for the exchange to provide “more transparency and information for newly tradable assets,” specifically mentioning the expansion of offerings.