The U.S. government is really starting to get serious about crypto. So far this year, we’ve had milestone arrests in one of the largest cryptocurrency hacking cases, and arrests in an NFT rug pull scam.
Now, we have arrests in what the U.S. Attorney’s Office for the Southern District of New York are calling the “first ever cryptocurrency insider trading tipping scheme.” Former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi and Ishan’s friend Sameer Ramani have been charged with two crimes: wire fraud conspiracy, and wire fraud, both of which revolve around crypto insider trading based on confidential Coinbase information.
Basically, Ishan Wahi, in his position as product manager, had advanced knowledge of cryptocurrency tokens that would soon be listed on Coinbase, the U.S.’s largest cryptocurrency exchange. Normally, when a token is added to Coinbase, there is an influx in new retail investors, thus pumping up the value in the cryptocurrency. Those who invested in these tokens before they hit Coinbase stand to gain a profit as they got in at a lower price before the Coinbase listing.
From June 2021 to April 2022, Ishan allegedly provided this insider information before Coinbase’s public listing announcements to his brother and his friend. Nikhil Wahi and Sameer Ramani allegedly bought at least 25 different crypto assets on at least 14 different occasions prior to the public announcement that the token would be added to Coinbase.
The scheme allegedly made the three approximately $1.5 million in realized and unrealized gains.
According to the Department of Justice, they were tipped off by a crypto influencer on Twitter, @cobie, who said he found an Ethereum wallet back in April 2022 that had invested in hundreds of thousands of dollars worth of crypto approximately 24 hours before these tokens would be officially announced for listing by Coinbase.
After seeing @cobie’s tweet, Coinbase launched an internal investigation into the matter. The following month, on May 11, the company informed Ishan Wahi that they wanted him to attend an in-person meeting on May 16 regarding Coinbase’s asset listing process. Wahi told his employer that he would attend. On May 15, Wahi booked a one-way flight to India but was stopped by law enforcement prior to boarding.
Both Ishan and his brother, Nikhil, were arrested this morning. Ishan’s friend Sameer has yet to be apprehended. All three face a maximum sentence of 20 years.
After these charges were announced, the Securities and Exchange Commission (SEC) had its own follow-up bombshell announcement. The SEC filed separate securities fraud charges related to the insider trading case, naming 9 of the tokens involved as securities.
The tokens listed as securities are AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX, KROM.
Cryptocurrency advocates have long argued that tokens are commodities, as there are different rules surrounding them. Securities, such as stocks, show ownership in a company and have a more stringent set of regulations to follow. Clearly, the SEC disagrees…at least when it comes to some tokens.
As The Verge points out, Coinbase updated their own blog post from May about the investigation. Interestingly, they seem to focus more on their disapproval with the SEC for declaring that some cryptocurrency tokens are securities than the fact that one of their own former employees was charged with insider trading using their platform.
While it’s technically true that these charges represent the first-ever crypto insider trading case, you better believe that there have been plenty of prior insider trading schemes in this wildly unregulated and shady market. And you can bet your bottom Bitcoin that this won’t be the last time charges of crypto insider trading are filed by the DOJ.
