- US authorities arrest former Coinbase executives for insider trading.
- With two partners, he took advantage of insider information and thus made $ 1.5 million in profit.
- The SEC also says that it is insider trading in securities, which Coinbase vehemently rejects and criticizes.
The US authorities have filed charges against three people for conspiracy to commit wire transfer fraud and wire transfer fraud in connection with planned insider trading in cryptocurrencies. Among these three is also a former product manager at Coinbase Global.
In a statement on Thursday, the US Attorney’s Office in New York, in cooperation with the FBI’s New York field Office, said that it had filed charges against former Coinbase Global product manager Ishan Wahi, as well as his brother Nikhil Wahi and their partner Sameer Ramani. The trio allegedly took advantage of confidential information that Ishan had received from Coinbase, and therefore knew which tokens should be listed on the exchange. With this knowledge, they made profits of about $ 1.5 million from trading 25 different cryptocurrencies.
Three charged in first ever cryptocurrency insider trading tipping scheme https://t.co/cdTcwQQOau
– U.S. Attorney SDNY (@SDNYnews) July 21, 2022
According to the authorities, Ishan, in his position as a product manager, had access to certain information about the listing of cryptocurrencies on exchanges controlled by Coinbase from August 2021 to May 2022. The introduction dates of the tokens also fall within this period. The US prosecutor’s office claims that from June 2021 to April 2022, Ishan passed on information about launch dates of tokens to his brother or Ramani, who then invested in these cryptocurrencies. As a result, there was, as expected, a jump in the price, since the asset was quoted by a major exchange such as Coinbase. In particular, the indictment mentions the following profits and tokens: $ 7,000 profit from trading with Tribe (TRIBE), $ 13,000 from trading with Alchemix (ALCX), Gala (GALA), Ethereum Name Service (ENS) and Powerledger (POWR), and $ 900,000 from trading with XYO.
The trio is alleged to have engaged in this type of insider trading on at least 14 different Coinbase exchange announcements. To this end, the three alleged perpetrators used several Ethereum blockchain wallets for purchases and transfers, as well as accounts on centralized exchanges on behalf of others. Authorities arrested Ishan and Nikhil in Seattle on Thursday, while Ramani remains at large.
“Although the allegations in this case relate to transactions on a crypto exchange and not to the traditional financial market, it is still insider trading,” said FBI Deputy Director Michael Driscoll.
At the same time, the US Securities and Exchange Commission (SEC) has also filed charges against the Wahis brothers and Ramani. She claims that at least 9 of the 25 assets with which the trio allegedly engaged in insider trading were securities that brought them a profit of $ 1.1 million. These are the tokens POWR, Kromatika (KROM), DFX Finance (DFX), Amp (AMP), Rally (RLY), Rari Governance Token (RGT), DerivaDAO (DDX), LCX and XYO. The regulator alleged to the lawsuit that these three individuals violated anti-fraud regulations in the securities laws. The SEC is seeking a permanent injunction, compensation and fines.
“We are not interested in labels, but in the economic reality of an offer,” said Gurbir Grewal, head of the SEC enforcement department. “In this case, these facts confirm that some of the affected crypto assets are securities and that the defendants, as stated, engaged in typical insider trading in advance of their listing on Coinbase.”
In this context: SEC: Investigation into insider trading on stock exchanges?
Many people from the crypto community became aware of some of these alleged incidents in April, when online detectives discovered that several Ethereum wallets had purchased large amounts of six tokens. This led to the fact that insider trading was suspected, because these purchases always took place before a major token announcement by Coinbase. The CEO Brian Armstrong said at the time, “there is always a possibility that someone within Coinbase, knowingly or unknowingly, will pass on information to outsiders who will then engage in illegal activities”. The exchange would investigate such incidents and, if necessary, coordinate with external law firms:
“If these investigations reveal that a Coinbase employee has in any way supported or facilitated a criminal activity, these employees will be dismissed immediately and the incident will be forwarded to the appropriate authorities (possibly with criminal prosecution).”
The US attorney’s office reported that the head of Coinbase’s security department spoke with Ishan on May 11 to arrange a meeting related to the exchange’s token quotations. Ishan tried to catch a flight to India before the scheduled meeting on May 16, but was stopped by law enforcement authorities.
According to a tweet from Coinbase Chief Information Security Officer Philip Martin on Thursday, the exchange passed on the information about the Wahi brothers and Ramani to the authorities after an internal investigation. A recent blog post from the company stated that Coinbase “takes allegations of improper use of company information very seriously” and has “zero tolerance for this type of misconduct”. Although the company supported the actions of the prosecutor’s office against these three people, it criticized the SEC’s classification of 9 tokens as securities:
“None of the assets listed on our platform are securities and the SEC’s allegations are an unfortunate distraction from today’s appropriate law enforcement action.”
At the time of writing, Ishan’s LinkedIn profile was not publicly visible and his Twitter account is protected. In a blog post for Coinbase in March, the former product manager wrote about the exchange’s efforts to provide “more transparency and information for new assets to trade,” specifically mentioning the expansion of the offering.
