Feds Turn Up the Heat on Crypto with Insider Trading Case Against ex-Coinbase Employee

Former Coinbase product manager Ishan Wahi and two associates have been charged for allegedly front-running token listings.

By: Jason Levin Loading...

Feds Turn Up the Heat on Crypto with Insider Trading Case Against ex-Coinbase Employee

The U.S. Justice Department’s crackdown on crypto just ratcheted up a notch. On Thursday, Federal prosecutors accused a former employee of Coinbase, the leading crypto exchange, and two others in the first-ever case of insider trading involving cryptocurrencies.

In a 22-page indictment, prosecutors in New York allege former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi, and his friend Sameer Ramani, used Ishan’s connections to learn which crypto assets were scheduled to be listed on Coinbase’s exchanges. The group then allegedly purchased the tokens and sold them after the information became public and typically boosted the value of the tokens.

The three men traded over 25 different crypto assets on at least 14 occasions and walked away with $1.5M in illicit profits, according to the indictment. Using confidential information to profit from trading securities is illegal.

The U.S. Securities and Exchange Commission also sued the three defendants and accused Ishan of tipping off Nikhil Wahi and Ramani about the imminent listings of tokens, including lightly traded names POWR, LCX and AMP.

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The trio are being charged with wire fraud conspiracy and wire fraud. The case comes less than two months after former OpenSea employee Nate Chastain was arrested for alleged N FT insider trading.

“Today’s charges are a further reminder that Web3 is not a law-free zone,” said U.S. Attorney Damian Williams. “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,” Williams continued.

While there has been a decade-long debate going on in crypto about whether cryptocurrencies are securities, the Justice Department made it clear digital assets are covered by the same laws that encompass stocks, bonds, and other instruments.

“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 J. Driscoll. “Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new.’”

Not Securities

In its complaint, the SEC said “digital assets”, “tokens”, and “coins” meet the definition of securities.

Coinbase, which went public in April 2021 and has a market capitalization of $16.4B, contends none of the assets listed on their platform are securities. “We understand that the SEC has separately filed securities fraud charges related to this wrongdoing today.,” the company said in a blog post. “The DOJ did not charge securities fraud. No assets listed on our platform are securities, and the SEC charges are an unfortunate distraction from today’s appropriate law enforcement action.”

In the wake of numerous rug pulls and alleged Ponzi schemes, fraud has become a part of crypto’s reputation. Some believe it will continue to get worse.

“The rise in crypto and digital payment crimes, including insider trading and fraud, has, and will likely, be a growing trend in financial crime,” Braden Perry, a former senior attorney at the Commodity Futures Trading Commission, told The Defiant. “Couple the new technology with the traditional methods of financial crime, and the entry of retail customers looking for the latest trends is a recipe for nefarious conduct.”

Influencer Cited

In the indictment, the Southern District of New York confirmed this case was brought to their attention by a “Twitter account that is well-known within the crypto community”, assumed to be crypto influencer Cobie. After Cobie’s tweet, Coinbase launched an investigation into Wahi and promptly fired him.

Ishan Wahi attempted to flee the United States to India on May 16, but was stopped by law enforcement and prevented from leaving the country. His brother was also arrested but Ramani remains at large. All three face a maximum sentence of 20 years in prison if convicted.

With this latest action, US law enforcement is sending a clear message to the crypto community to play by the rules, even as the debate over tokens as securities continues to rage.

Updated on July 22 to report the SEC’s complaint and definition of digital assets as securities.