- Allegedly, a former Coinbase manager and two others conducted illegal trade in at least 25 different cryptocurrencies and earned around $1.5 million.
- SEC has initiated investigations against the defendants on charges of securities fraud.
- Ishan Wahi, the ex-Coinbase employee, tried to flee the country following news of insider trading in May.
The U.S. Department of Justice on Thursday arrested Ex-Coinbase product manager Ishan Wahi, and his brother Nikhil Wahi and charged Sameer Ramani with alleged wire fraud in the first insider trading case involving the cryptocurrency.
Prosecutors state that Ishan Wahi shared confidential information about forthcoming announcements of new crypto assets that Coinbase would soon list. DOJ acknowledged that the value of cryptocurrencies “typically significantly increased” after Coinbase announced the potential listing of the assets. Therefore, Coinbase kept confidential all information related to the public listing announcements and prohibited employees from sharing such information.
The U.S. Securities and Exchange Commission (SEC), which assisted in the investigation, initiated civil proceedings against the defendants on July 21 on securities fraud charges. Despite DOJ not making an allegation of securities fraud, SEC has framed the following assets as securities: Power Ledger’s POWR token, Flexa’s AMP token, Rally’s RLY token, DerivaDEX’s DDX token, X.Y. Labs’ XYO token, Rari Capital’s RGT token, Liechtenstein Cryptoassets Exchange’s LCX token, DFX Finance’s DFX token, and Kromatika Finance’s KROM token.
However, Coinbase in its latest blog, rectified that no assets listed on their platform are securities. “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”, the Coinbase blog reads.
Amidst this, Coinbase has filed a petition requesting SEC to initiate rulemaking on digital asset securities.
Allegations and Timeline of Events
According to DOJ, the former Coinbase manager and two others conducted “illegal trades” in at least 25 different cryptocurrencies and earned around $1.5 million.
In October 2020, Ishan joined Coinbase as a product manager in the asset listing team. According to the press release, Ishan had good knowledge of which assets the exchange was planning to list and the timing of their public announcements.
The U.S. Department of Justice (DOJ) alleges that between June 2021 and April 2022, Ishan leaked highly confidential information about Coinbase listing announcements to his brother Nikhil and his friend Ramani.
After receiving the needed information, Nikhil or Ramani bought the assets in advance using anonymous Ethereum wallets and sell for profit once the price increased after the Coinbase listing announcement.
According to the official press release, Nikhil and Ramani had prior information about 14 Coinbase listing announcements involving at least 25 different assets.
The DOJ adds that in order to conceal their schemes, both of them used centralized exchange accounts in the name of others and transferred funds and profits to multiple anonymous or new Ethereum wallets.
However, Coinbase in April noticed the insider trading when Nikhil and Ramani bought large quantities of at least six crypto assets the company was considering listing. In Mid-April, a Twitter user who goes by the name of Cobie pointed out that someone bought over $390,000 worth of assets that featured on the Coinbase announcement, just 24 hours before the list was made public. The DOJ in its statement acknowledged the trading in the wallet referenced by Cobie was conducted by Ramani.
Cobie’s tweet was acknowledged by Coinbase Chief Security Officer Philip Martin triggering an investigation within the company. Later in May, Coinbase summoned Wahi for an in-person meeting, but he allegedly attempted to flee to India and was stopped at the airport.
Damian Williams, U.S. Attorney for the Southern District of New York, commenting on the charges, stated, “Our message with these charges is clear: fraud is fraud is a fraud, whether it occurs on the blockchain or on Wall Street.”
Coinbase in its blog acknowledged that they would cooperate with the investigation.”We are committed to doing our part to ensure that all market participants have access to the same information, which is critical to advancing our mission of promoting economic freedom. We do not hesitate to take action when we find wrongdoing.”
Insider Trading and Wire fraud cases are slowly gripping the digital assets market. Recently, U.S. prosecutors arrested a former OpenSea manager in the first-ever NFT insider trading case.